SThree: Final Results

·44-min read

SThree (STEM)
25-Jan-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

SThree plc

("SThree" or the "Group")

 

FINAL RESULTS FOR THE YEAR ENDED 30 NOvember 2020

 

delivered a resilient performance

guided by our purpose and our focus on STem

 

SThree plc, the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics ('STEM'), is today announcing its financial results for the financial year ended 30 November 2020.

 

FINANCIAL HIGHLIGHTS

 

 2020

 2019

Variance

Continuing operations

excluding discontinued operations in Australia

Adjusted (1)

Reported

Adjusted (1)

Reported

Movement (2)

Constant

currency

movement (3)

Revenue (£ million)

1,202.6

1,202.6

1,324.7

1,324.7

-9%

-9%

Net fees (£ million)

308.6

308.6

338.0

338.0

-9%

-8%

Operating profit (£ million)

31.3

31.8

60.0

57.7

-48%

-48%

Operating profit conversion ratio

10.1%

10.3%

17.8%

17.1%

-7.7% pts

-7.6% pts

Profit before tax (£ million)

30.1

30.6

59.1

56.8

-49%

-49%

Basic earnings per share (pence)

13.9

14.2

33.2

31.8

-58%

-58%

Proposed final dividend (pence)

5.0

5.0

-

-

n/a

n/a

Net cash (£ million) (4)

49.9

49.9

10.6

10.6

+371%

+371%

 

1) Excluding the impact of £0.5 million in net exceptional income (2019: £2.3 million in net exceptional cost).

(2) Variance compares adjusted 2020 against adjusted 2019 to provide a like-for-like view.

(3) Variance compares adjusted 2020 against adjusted 2019 on a constant currency basis, whereby the prior year foreign exchange rates are applied to current and prior financial year results to remove the impact of exchange rate fluctuations.

(4) Net cash represents cash and cash equivalents less borrowings and bank overdrafts and excludes leases.

 

 

FULL-YEAR HIGHLIGHTS 

 

 

* In constant currency

 

 

Mark Dorman, CEO, commented:

"In 2020 we faced a once in a century event that provided a series of unprecedented tests. SThree not only dealt with those challenges but is emerging as a stronger business; I am proud of the many achievements we are able to list today. Through our unrelenting focus on our strategy, and guided by our purpose, we have taken market share in several of our key regions and delivered robust financial results which underscore our differentiation from non-specialist staffing businesses. Our USA business, for example, has managed to grow net fees 2%* this year against an overall staffing market decline, which is a testament to the quality of our teams there and the strength of our targeted STEM strategy.

Our focus on improving the way we operate, no matter the environment, has delivered increased sales activity, contractor retention rates and the average productivity of our consultants steadily improving since Q3.

Alongside the positive progress in key performance indicators such as these, we have continued to make a real impact on the lives of the people we work with and the society in which we operate. In 2020, we have placed nearly 14,000 of the skilled people who are coming together to build the future, as well as providing comprehensive support to our consultants, clients and communities. Being part of a responsible and sustainable organisation has never been more important and we have shown this is at SThree's core.

Whilst uncertainty remains, we are confident we have the right strategy in place to continue to drive the Group forward towards our long-term ambitions and are highly focused on ensuring we execute on it. Over the coming year we will continue to invest in our people, data, technology, and our go-to market approach, leveraging the power of our platform to reduce the cost of customer and candidate acquisition. Our aim remains to continue taking market share, working towards our ultimate goal of becoming the number one STEM talent provider in the best STEM markets."

 

 

A video overview of the results from the CEO, Mark Dorman, and CFO, Alex Smith, is available to watch here: http://bit.ly/STEM_FY20_overview

 

 

Management Succession

 

The Board also announces that following over twelve successful years with the Group, Alex Smith, CFO, will be stepping down as CFO and a Board Member. The search for his successor is underway and the market will be updated accordingly.

 

James Bilefield, Chairman, commented:

"On behalf of the Group, I would like to take this opportunity to thank Alex for his excellent contribution over the past twelve years. Alex has worked diligently and effectively with both the Board and our teams to help make SThree what it is today, astutely guiding the Group's entrepreneurial spirit.

 

It would be remiss not to highlight his work over the past year, through an incredibly difficult environment, to ensure that the Group has retained its financial strength. We are hugely grateful to him for building and maintaining such a strong platform from which we will continue to deliver, and allowing us to focus on executing against our ambitions as we move into our next stage of growth.

 

Mark Dorman, CEO, added:

"On joining the Group and wider industry, I could not have asked for a better right hand, providing me with sage insight and guidance. It has truly been a pleasure working together and I want to take this opportunity to thank Alex, both from me personally, but also the whole of SThree, and I know we all wish him all the best for the future."

 

 

Analyst conference call

 

SThree is hosting a webinar for analysts today at 09:30 GMT. If you would like to register for the webinar, please contact SThree@almapr.co.uk

 

SThree will issue its Q1 trading update on 15 March 2021.

               

Enquiries:

 

SThree plc      020 7268 6000

Mark Dorman, Chief Executive Officer

Alex Smith, Chief Financial Officer

Steve Hornbuckle, Company Secretary

 

Alma PR       020 3405 0205

Rebecca Sanders-Hewett    SThree@almapr.co.uk  

Susie Hudson

   

 

 

Notes to editors

 

SThree is the only global pure play specialist staffing business focused on roles in STEM (Science, Technology, Engineering and Mathematics). It brings skilled people together to build the future through the provision of specialist Contract and Permanent services to a diverse client base of over 9,000 clients. From its well-established position as a major player in the Technology sector, the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.

 

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Progressive, Computer Futures, Huxley Associates and Real Staffing Group. The Group has circa 2,600 employees in 15 countries.

 

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

 

 

 

Important notice

 

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

CHair's statement

 

Never has a year been more different than what we had expected. In November 2019 we set out our purpose, strategy and ambitions at our Capital Markets Day with excitement and confidence for the years ahead. Whilst our first year following this path has seen us, and the wider world, face a myriad of unexpected challenges, we have remained resolute in our focus and determination to deliver on those ambitions. I am pleased to say that we have made significant progress along that path. We have delivered financial performance above previous market expectations and are outperforming our peers on many measures, demonstrating the resilience of our model with its recurring revenue and attractive cash characteristics, alongside our strength of focus and clarity of strategy.

We have seen our purpose - bringing skilled people together to build the future - brought to life this year more than ever. Our teams worked closely with our clients and candidates to be their partner through the COVID-19 health crisis and gradual emergence of a 'new normal', filling key STEM roles at a time of extraordinary upheaval.

Internally, our leadership team brought our people together and showed decisiveness, strength and sensitivity. This year has been tough on all of us, and I would like to take this opportunity to thank the exceptional teams around the world at SThree not only for their hard work, but also for their fortitude and endurance in such challenging times.

The Board has worked hard during the year to act in the long-term interests of all stakeholders, balancing complex and sometimes conflicting interests and priorities. We implemented a number of cost management initiatives which were required during the year, but also were able to maintain necessary investment in the future of the Group, notably in technology and some key appointments to drive operational change, project delivery and agility.

Whilst the health crisis and its economic impacts will eventually pass, we believe that the recent acceleration in the two key long-term, secular trends at the heart of our strategy - STEM and flexible working - will continue to grow in importance around the world as we all look to build a better future. That will require ongoing investment in operational scale, agility and effectiveness, together with ever-closer client and candidate relationships.

The effective use of data will be critical to success in that environment. We have already established a comprehensive market intelligence programme to ensure that we understand what is most important to our clients and candidates, both now and in the future, and we plan to grow our expertise, staying ahead of the curve in the coming years.

Lastly, but importantly, during the year we have deepened our focus on the Group's impact on the wider world and the communities in which we operate. Whilst Environmental, Social and Corporate Governance ('ESG') has long been on the agenda at SThree, it is now increasingly woven into everything we do, with particular emphasis on building a green future, developing a fully inclusive workforce and ensuring that we operate our business to the highest ethical standards, overseen by FTSE 250-appropriate corporate governance.

Our opportunity is significant, our strategy is right and the improving sequential trends in our specialist STEM markets are favourable. We remain confident that the Group is primed to deliver for the long-term benefit of all of our stakeholders.

 

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

Our purpose of 'bringing skilled people together to build the future' has never been more relevant and we have the right strategy, positioned at the centre of the secular trends of STEM and flexible working, to best capitalise on this growing opportunity in the future.

As an example, our DACH business explored new opportunities within Life Sciences in the period, working closely with BioNTech - our client in Germany - to place the experts leading the research efforts to find a vaccine for COVID-19. In the UK, we worked closely with Thermo Fisher Scientific - a global life sciences company specialising in pharma, IVD, and medical devices - in placing medical device professionals across validation, quality, and regulatory roles. In the USA, our specialist IT team has worked alongside a higher education institution - Teachers College of Columbia University - to implement the digital infrastructure that enables them to build virtual communities for the incoming college students. Further examples of our purposeful work in the year can be found in our 2020 Annual Report and Accounts.

At our Capital Markets Day in November 2019, we set out a clear strategy and in the first quarter were delivering in line with it. As the global health crisis accelerated, rapid adjustments to our business were made to ensure that we were able to best look after our teams, service our clients and navigate the new economic and working landscape. I am pleased to say that we never lost sight of our purpose or our strategy, and these principles continue to guide us. 

This unrelenting focus on our strategy has delivered a financial performance ahead of where we reset our expectations when COVID-19 first hit. Group net fees in the year were down only 8%*, with Contract net fees showing particular resilience with a 7%* decline. We have continued to take market share in the USA, Germany, the Netherlands and the UK and made progress against several of our 2024 ambitions. In the second half of the year, as our strategic management of the crisis took effect, we saw significant sequential improvement of Group performance with sales activity, contractor retention rates and consultant productivity increasing quarter-on-quarter from Q3.

Despite all the challenges this year, it is evident from our performance that we have the right strategy, are in the right markets and our teams are executing well. While 2020 has not turned out as we had thought it would at our Capital Markets Day in November 2019, what is clear is that we are well positioned for the future and for capturing the growth opportunities ahead. The key strategic ambitions we outlined at the Capital Markets Day, if anything, have been reinforced by our experience and actions over the last year.

 

Our response to the health crisis

As we saw the impact of the virus starting to take shape across the globe, on 28 February we set up a dedicated COVID-19 health crisis team made up of key senior managers from across the business, tasked with monitoring operations and reacting as appropriate. The committee met daily to make sure all possible action to help mitigate any impact were considered and then taken quickly and effectively, ensuring that the Group kept its people safe, could operate regardless of the conditions and maintain its financial strength. So that we would be in a strong position to continue executing on our growth strategy, we created a framework for the organisation to work with. This involved breaking the crisis down into operational phases, each with its own set of priorities; these phases were Emergency Response, Ongoing Crisis Management and Recovery to the Next Normal.

As the virus moved from mainland China and become a global health crisis, we saw an immediate impact across all our markets. Our Emergency Response was triggered, focused on maintaining the safety of our people, candidates and clients whilst at the same time maintaining the full operational capability of the Group. We were able to quickly and efficiently adjust, as around 98% of our employees began working from home. Despite these changes, our teams went above and beyond to serve our customers and meet their objectives.

The wellbeing and engagement of our team has been an ongoing priority. With over 95% of our colleagues continuing to work remotely, we've made sure we are providing them with all the necessary tools to operate effectively. We have supplied support digitally ranging from advice on how to manage remote teams and guidance on remote working, through to full online learning and development programmes. Having the tools to operate effectively doesn't just mean physically, and in order to protect the wellbeing of our employees we launched our THRIVE wellbeing platform in May offering comprehensive support and advice on the areas of identified concern. Under this banner, we've also hosted a number of roundtable discussions on working from home where our people shared their tips on how to get by in lockdown. 'Build trust' and 'Care then act' are two of our three operating principals, and as an organisation, we've whole-heartedly embraced these as working hours have become more flexible to adapt to personal commitments.

We have also created dedicated resources on our digital platforms for our candidates, to ensure that they are fully supported, with information, articles and guidelines on remote working, as well as information on how to contact us and other tips for getting through the health crisis. Illustrating the success of these programmes, our net promoter score ('NPS') from our clients and candidates has improved by eight points to 52.

I am proud to say that our teams have helped to place many candidates whose STEM talent is being utilised to solve the health crisis. As an example, in DACH we were able to place multiple freelancers in key roles with leading pharmaceutical and biotechnological companies, supporting the development of potential COVID-19 vaccine candidates. In the USA we collaborated on a large-scale Clinical Research Associate ('CRA') project, quickly deploying over 50 CRAs nationally to help in the fight to treat COVID-19.

We implemented a number of initiatives to ensure the business remained on a strong financial, as well as operational, footing throughout this period. These proved very successful, and I am pleased that following an increase in sales activity levels in Q3 (particularly in Contract) coupled with the strength of the balance sheet, we were able to repay all furlough support that we had previously claimed from the UK Government. We also repaid the RCF of £50.0 million which was drawn down at the beginning of the lockdown period but not utilised. We also resumed a modest share buy-back programme to satisfy employee ownership plans, further demonstrating our confidence in the business.

The impact of the health crisis on society has been wide-ranging and has magnified the inequalities that already existed. It has disproportionately impacted younger people, people of colour and women and this, together with other events in the year, have shone a spotlight on diversity. In response we focused on strengthening and broadening our existing work on the issue, launching a global D&I strategy in April 2020. We created local focus groups, with regional leads and advocates to support progress in our business, and are working with community partners, clients and candidates to build programmes to open up pathways into STEM careers for people from diverse backgrounds. Our ambition is to be recognised as a global D&I leader in the staffing industry.

 

Leveraging our position at the centre of STEM

We have always had close relationships with our clients and candidates, but the health crisis has in many ways brought us even closer. We are working with our clients to not only source the best talent to help them deal with changing business conditions now, but also providing guidance on what skills they will likely need in both the immediate future and the longer term. The health crisis has undoubtably broadened minds to flexible working and its ability to decrease the barriers of physical geography, providing access to broader talent pools. This is where being the only global pure-play specialist staffing business focused on STEM really comes into its own as we have access to niche talent across the world that we are now able to offer more widely to global clients.

Alongside this, we believe our position in STEM markets should be a force for good, for clients, candidates, and our STEM experts of the future. We have therefore launched a number of initiatives to nurture interest in our chosen industries. One of these is our STEM Series, where we have collaborated with industry experts to run Thought Leadership events addressing topics such as career barriers, diversity in STEM and personal development. We are pleased that over 2,750 people joined us over the series to pursue their professional development. At the same time, we are working with community partners and clients to deliver virtual events specifically for young people from underserved communities, helping them understand pathways into STEM careers.

As well as cultivating future STEM talent, we began work supporting people at risk of unemployment and underemployment in the USA with the launch of our STEM Career Pathways programme there in August. Within the programme candidates volunteer their time to mentor students, developing their own leadership and coaching skills whilst supporting the next generation of diverse tech talent. We will expand this programme into other markets in 2021. 

 

A business set for now and the future

We still face, what is at its core, a health crisis, and while governments and scientists across the globe continue to develop strategies to contain the virus and so long as the resulting economic and other impacts persist, we expect to see significant continued volatility in our markets. However, in line with our approach at the outset of the health crisis we are committed to learn and adapt so we can operate in whatever environment we are presented with. We have shown that we are capable of overcoming the challenges by adapting to the next normal. Our teams have shown remarkable resilience during these challenging times and we have shown that we can deliver in whatever environment we are presented with.

As a result of our strategic focus on STEM and flexible working, the current environment and its acceleration of those trends, our proposition is proving to be highly relevant. Whilst the crisis has had a significant impact on the overall recruitment market, demand for STEM roles has been robust. These roles have been crucial in supporting both the global response to the crisis and the widespread adoption of digital transformation accelerated by different restrictions. Alongside this, our second secular trend of flexible working has continued to become more prevalent. There has been a seismic shift in working practices prompted by the health crisis and we believe many businesses will now be adopting these for the long term.

Whilst a number of the initiatives we introduced in the period were immediate reactions to the health crisis, we remain focused on building for the future, led by our purpose and strategy. It remains difficult to know what lies ahead and what the future will look like, but it is clear that we are going to see lasting consequences of the current health crisis and the way it has changed the way we work. Given our position at the centre of the two secular trends we are confident that we are well placed to capitalise on this new world of work, and so we are investing in the areas that we are confident will build the infrastructure to support our ambitions and drive our growth. We are committed to the use of data and insights to drive the business, investing in the right tools and technology, continued learning and development and focusing on the right markets, and will continue to do so to position us for the future.

 

Responsible business

Our purpose of bringing skilled people together to build the future feels even more appropriate today. We source, nurture and place STEM talent with clients who are solving complex world challenges, we connect clients with talent who will contribute solutions to society. Our goal is to truly embed ESG within our business and we have been building out our ESG strategy; identifying three key areas we can have the most impact and introducing new targets to increase our accountability. We are committed to building a sustainable future and the unprecedented events of this year have strengthened our resolve. A more detailed review of the Group's ESG Strategy is available in the Group's Annual Report and Accounts 2020.

 

Outlook

Our initial view, taken in spring 2020, that this health crisis will create sustained and significant volatility in staffing demand has proven to be correct, and we continue to see uncertainty ahead in several of our markets as restrictions wax and wane across the globe.

Our strategy so far has proven successful and we will continue to drive the Group forward in the coming period towards our long-term ambitions. As we continue to head into the fourth industrial revolution accelerated by the current health crisis, the secular trends of STEM and flexible working will only become more powerful over the next year. We see the world's 'winning' organisations embracing STEM skills in order to thrive, just as those businesses less well suited to the current environment appreciate that they must adapt for the new world quickly to be able to survive. We are therefore highly focused on first-class strategic execution across the business, ensuring we are best able to capitalise on the opportunity available to us.

Over the coming year we will continue to invest in our people, data, technology, and our go-to market approach, leveraging the power of our platform to reduce the cost of customer and candidate acquisition. Our ultimate aim remains to continue taking market share, working towards our ultimate goal of becoming the number one STEM talent provider in the best STEM markets.

 

Group OPERATIONAL REVIEW

 

Overview[1]

As a Group, we have delivered a resilient performance for the period, despite the impact of the COVID-19 health crisis. As previously noted, this drove an aggregate drop in demand across all our territories and sectors in Q2, although we have seen a steady recovery in our performance throughout the second half.

Performance has been varied across different regions, sectors and within specific niches. From a regional perspective the USA and Germany continue to perform particularly well, delivering very strong results given the circumstances. Our strategic focus on Contract has also provided the business with greater resilience in the more uncertain economic conditions we have faced. Pleasingly, Permanent has also held up well with DACH, our largest Permanent market, delivering net fees down only 3%*.

Whilst broader market conditions for staffing continue to be challenging, the STEM markets have been robust in comparison and we are confident we can maximise our opportunities with strategic initiatives and selective headcount growth. In what has been a more difficult period for our teams, the quality of our management and increasing expertise in our niche markets is driving us forward on our journey to become the number one STEM talent provider in the best STEM markets. We are committed to ensuring that SThree is well positioned over the long term and are confident we can continue to exploit the accelerating secular trends of STEM and flexible working across global markets and deliver our long-term ambitions.

 

2024 ambitions

In 2019, looking ahead to 2024 we set ourselves several ambitions to deliver growth and value for our Company and all stakeholders:

Alongside this we committed to several targets regarding our people and society that reflect the importance we put on being a people-centric and purpose-driven business. For example, to maintain our Learning & Development ('L&D') spend at 5% of operating profit, to grow productivity per head over the period by 1% to 2% per annum and to reduce our absolute CO2 emissions by 20%.

We have made good progress taking market share in the USA, Germany, the Netherlands and the UK in the period. Whilst the operating profit conversion ratio naturally declined to 10.1% as a result of the impact of the health crisis, our free cash flow conversion rapidly accelerated up 168%, thanks to a focus on cash management alongside the nature of our Contract-focused business model. Within our People and Society goals we are delighted to have maintained our L&D spend at 5% in this crucial period for supporting consultants, and also to have reduced our CO2 emissions by 56%. Whilst overall productivity per head declined 3% YoY as a direct impact of health crisis-related disruption, we are very pleased to have achieved a strong sequential improvement over the second half, which was up 4% YoY, demonstrating the strength of our strategy and our ability to embrace our challenging environment and focus on operating effectively regardless of the physical restrictions.

 

Group 

Net fees by division

Movement YoY (in constant currency)

         2020 mix

 

 

Contract

Permanent

Total

Contract

Permanent

 

-7%

-13%

-8%

76%

24%

 

 

 

 

 

 

 

 

 

 

Breakdown of net fees

2020

2019

Geographical split

 

 

EMEA excluding DACH

38%

42%

DACH

34%

32%

USA

25%

23%

APAC

3%

3%

 

100%

 

100%

Sector split

 

 

Technology

45%

45%

Life Sciences

23%

20%

Engineering

22%

21%

Banking & Finance

8%

11%

Other sectors

2%

3%

 

100%

100%

 

 

 

Operational review by reporting segment

 

 

EMEA excluding DACH (38% of Group net fees)

Net fees by division

Movement YoY (in constant currency)

         2020 mix

 

 

Contract

Permanent

Total

Contract

Permanent

 

-15%

-26%

-16%

86%

14%

 

 

 

 

 

 

 

 

 

EMEA excluding DACH comprises businesses in Belgium, the Netherlands, Luxembourg, France, Spain, the UK, Ireland and Dubai.

Highlights

 

Net fees performance

Net fees have declined in EMEA excluding DACH, down 16%* YoY, primarily driven by the more challenging performance in the UK.

The Netherlands, our largest country in the region, has shown resilience - down 10%* in total - with strong performances in Engineering (up 20%*) and Life Sciences (up 6%*) reflecting the strategic focus of our teams.

Our business in Dubai was down 11%*; however, Banking & Finance has grown 13%*.

Strategic progress

During the year we have focused on our customer relationships to deliver value and as a result have taken further market share in the Netherlands and the UK. Data has been the key driver behind our investment decisions, enabling us to identify changing customer demands and requirements, so that we can then utilise our position of strength within STEM and flexible working to cater to those demands.

We have supported our people throughout the year and introduced flexible working during the health crisis as their safety and well-being is our top priority. Diversity and inclusion programmes have been driven from the top and will continue into the new financial year.

 

 

DACH (34% of Group net fees)

Net fees by division

Movement YoY (in constant currency)

         2020 mix

 

 

Contract

Permanent

Total

Contract

Permanent

 

-3%

-3%

-3%

65%

35%

 

 

 

 

 

 

 

 

 

DACH is our second largest region comprising businesses in Germany, Switzerland and Austria; Germany accounts for 92% of net fees.

Highlights

 

Net fees performance

Our DACH region had a resilient performance in the year driven by significant growth achieved in Q1.

Whilst Q2 was impacted by COVID-19, the region showed good resilience in the second half of the year with a very strong performance considering the challenging macro-environment.

Net fees were down 3%* overall YoY.

Life Sciences has been the standout sector with growth of 4%* driven by an exceptionally strong Q1 and increased demand in Quality Assurance and Clinical Research and Development in the second half of the year. Switzerland, although a small part of the region, has shown strong growth of 31%*.

Strategic progress

We have continued to invest in our Market Intelligence tool and have seen a growth in our STEM market share, which helps us to become a leader in our top STEM specialist markets.

Our people are key to us - therefore, we are continuously developing our employer value proposition and have made it our top priority to protect our people and create a safe working environment for them in the light of the global health crisis. This has resulted in being awarded the Top Employer Award (Mittelstand) for the fourth consecutive year.

 

USA (25% of Group net fees)

Net fees by division

Movement YoY (in constant currency)

         2020 mix

 

 

Contract

Permanent

Total

Contract

Permanent

 

+4%

-7%

+2%

80%

20%

 

 

 

 

 

 

 

 

 

The USA is the world's largest specialist STEM staffing market. The region remains a key area of focus for the Group and we will continue to strategically invest in it as we align our resources with the best long-term opportunities.

Highlights

 

Net fees performance

The USA business has demonstrated its strength with net fees up 2%* for the year and up 11%* in Q4. This is a considerable achievement given the challenging macro-environment and this region has shown the benefits of investing in the right vertical niches and deeply understanding customer needs.

Performance in our Life Sciences business has been particularly strong, with net fees growing 16%* in the year. We have seen robust demand in the second half of the year in Clinical Operations, Product Development and Quality Assurance. Our Technology business has grown 9%*, with increased demand in Mobile Applications & Software Development, and Engineering was up 1%*.

Strategic progress

The USA business has continued to focus on high value skill niches resulting in an improvement in Contract gross margin since Q1 2018. During 2020 we have partnered with our clients to deliver critical projects ranging from digital transformation (mobile application development) to the development and deployment of COVID-19 vaccines, therapies and testing. We have increased our market share, whilst we stay true to our purpose and executing robustly on our strategy.

 

 

Asia Pacific (3% of Group net fees)

Net fees by division

Movement YoY (in constant currency)

         2020 mix

 

 

Contract

Permanent

Total

Contract

Permanent

 

-8%

-30%

-26%

20%

80%

 

 

 

 

 

 

 

 

 

Our APAC business principally includes Japan and Singapore. APAC represented 3% of Group net fees, in line with prior year.

Highlights

 

Net fees performance

Net fees for our Asia Pacific ('APAC') region were down 26%* in the full year, primarily driven by the more transactional nature of our business in Japan, which is 94% Permanent. Our Japanese business was down 25%* in the year with all sectors impacted.

Singapore net fees were down 29%* in the year, with business impacted across all our sectors. 

Strategic progress

We have taken the opportunity this year to focus on our brand identity and value proposition, and - as a result - delivered targeted solutions for the success of our clients. In line with our strategy and purpose, we are strengthening our position in STEM, with a clear focus on Technology and Life Sciences. People remain at the heart of our business and we have reviewed our career programmes, provided robust digital learning and continue to support our people during this challenging period.

 

 

chief financial officer's REVIEW  

When the health crisis struck, we responded thoughtfully and at pace. We protected liquidity and accelerated our scenario planning, all whilst working remotely. As the year progressed, the Group executed well and delivered a resilient performance, ahead of our expectations when COVID-19 first hit. Our strong balance sheet and immediately-accessible liquidity of £154.9 million give us confidence and position us well for the future.

 

Income statement

Revenue for the year was down 9% on a reported and constant currency basis to £1.2 billion (2019: £1.3 billion). Net fees decreased by 9% on a reported and 8% on a constant currency basis to £308.6 million (2019: £338.0 million).

Despite the negative implications of the COVID-19 health crisis, the Group succeeded in improving underlying sequential performance in the second half and delivered a resilient result for the full year. The demand for contract staff accelerated and our contractor book stabilised due to new deal activity and improved contractor retention rates in the second half. At the end of the year, Contract represented 76% of the Group net fees in the period (2019: 74%). Our net fees margin increased to 25.7% (2019: 25.5%).

Operating expenses decreased by 1.2% on a reported basis, mainly attributable to a reduction in personnel and miscellaneous costs. The slowdown in the Group's operations caused by the COVID-19 health crisis led to a pause in marketing spend, a decline in commissions and bonuses, and a temporary reduction in the Senior Executives' salaries. The Group also benefited from the government job retention support schemes in selected countries.

The Group's financial results were impacted by certain significant items of expense and income.

The reported operating profit was £31.8 million, down 45% YoY (2019: £57.7 million). The adjusted operating profit of £31.3 million (2019: £60.0 million) excluded exceptional income of £0.5 million in respect of the government grant receivable from Scottish Enterprise on the relocation of support functions (2019: £2.3 million primarily in respect of the CEO changes and restructuring of senior leadership).

Our operating profit conversion ratio decreased by 6.8 percentage points to 10.3% on a reported basis and 7.7 percentage points to 10.1% on an adjusted basis (2019: reported 17.1% and adjusted 17.8%).[2] The YoY movement reflects the overall slowdown in the Group trading activity in the light of the health crisis, partially offset by cost management initiatives implemented during the year in response to the crisis.

In line with our revised strategy and ambition to be the number one talent provider in the best STEM markets in which SThree has the highest opportunity to take market share, we ceased our operations in Australia. Its results were taken out of the above analysis for both the current and prior years. In 2020, the discontinued operations incurred an operating loss of £1.8 million (2019: breakeven), including exit costs of £1.1 million.

 

Net finance costs

Net finance costs increased to £1.2 million (2019: £1.0 million), which was a result of the full drawdown of the RCF to ensure strong liquidity in the first half plus the adoption of the new standard IFRS 16 on leases.

 

Foreign exchange exposure

For 2020, the YoY movements in exchange rates between Sterling, the Euro and the US Dollar (the main functional currencies of the Group) provided a moderate net headwind to the reported performance of the Group, reducing our reported net fees by approximately £1.0 million and operating profit by £0.2 million.

Exchange rate movements remain a material sensitivity. By way of illustration, each one per cent movement in annual exchange rates of the Euro and US Dollar against Sterling impacted our 2020 net fees by £1.8 million and £0.8 million respectively, and operating profit by £0.5 million and £0.3 million respectively. Our foreign exchange risk management strategy involves using certain derivative financial instruments to minimise the transactional exposure arising from currency fluctuations.

Income tax

The tax charge on the Group's adjusted profit before tax was £11.7 million (2019: £15.9 million) for the year, representing an effective tax rate ('ETR') of 41.5% (2019: 26.9%). The ETR on the Group's reported profit before tax was 41.1% (2019: 27.3%).

The ETR on continuing operations was 39.0% before exceptional items and 38.7% after exceptional items.

The Group's ETR primarily varies depending on the mix of taxable profits by territory, non-deductibility of the accounting charge for LTIPs and other one-off tax items.

In 2020, the extent to which tax credits on loss-making businesses were recognised had a material impact on the Group ETR. The COVID-19 health crisis increased the ratio of operating losses as a proportion of the absolute profits and losses of the Group. This, together with the reduction in Group results, resulted in the non-recognition of tax credits on loss-making businesses. The Group is affected by the European Commission's investigation into the state aid received by foreign subsidiaries controlled by SThree plc. Whilst this was noted as a contingent liability in 2019, in 2020 it was determined that it was no longer probable that the uncertain tax treatment surrounding this issue will be accepted. As such, a provision for £1.3 million was recognised and this also impacted the Group ETR.

Overall, the reported profit before tax from continuing operations was £30.6 million, down 46% YoY. The adjusted profit before tax from continuing operations was £30.1 million, down 49% YoY (2019: reported £56.8 million and adjusted £59.1 million).

Our reported profit after tax from continuing operations was £18.8 million, down 55% YoY. The adjusted profit after tax from continuing operations was £18.4 million, down 57% YoY (2019: reported £41.3 million and adjusted £43.2 million).

 

Earnings per share ('EPS')

On an adjusted basis, EPS was down 58%, at 13.9 pence (2019: adjusted 33.2 pence), due to a decrease in the adjusted PBT, an increase in the Group's ETR, and a 2.2 million increase in weighted average number of shares. On a reported basis, EPS was 14.2 pence (2019: 31.8 pence), down 17.6 pence on the prior year, attributable mainly to a decline in trading performance as explained above. The weighted average number of shares used for basic EPS grew to 132.1 million (2019: 129.9 million). Reported diluted EPS was 13.8 pence (2019: 30.9 pence), down 17.1 pence. Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses and the settlement of vested arrangements.

 

Dividends

Due to the prevailing uncertainty caused by the COVID-19 health crisis, the Board did not propose to pay the 2020 interim dividend (2019: 5.1 pence).

With underlying sequential improvements noted across the Group in the second half, and in the light of the Group's continued, robust financial position, the final dividend has been proposed at 5.0 pence and will be subject to shareholder approval at the 2021 Annual General Meeting. Despite the improved financial performance of the Group, the Board remains cognisant of the heightened volatility facing the Group and will continue to keep the capital allocation policy under review.

 

Balance sheet

Total net assets increased to £128.5 million (2019: £116.8 million), driven by the excess of net profit over the reduced dividend payment, favourable foreign currency, offset by the adoption of IFRS 16 and share buy-backs. Our trade receivables (including Contract assets) declined to £226.8 million (2019: £256.2 million) reflecting lower revenue and due to enhancements in credit risk management to preserve cash and provide greater clarity on the financial viability of the trade debtor book. Days sales outstanding remained level at 44 days (2019: 44 days).

Investment in subsidiaries (Company only)

Following the review of the recoverable amount of the Company's own portfolio of investments, a total impairment loss of £13.2 million was recognised. It was mainly in respect of the UK operation, which experienced increased risk, uncertainty, and reduced economic activity caused by COVID-19.

After booking this impairment, the retained earnings were £87.2 million (2019: £122.0 million).

Tracker shares

Only an immaterial number of tracker shares were settled during the year as the annual buy-out process was postponed (2019: tracker shares were settled for a total consideration of £4.4 million). In 2020 we settled the consideration in SThree plc shares by utilising 33,949 treasury shares. In the prior year, we settled the consideration for vested tracker shares in SThree plc shares either by issuing new shares (2019: 475,738) or treasury shares (2019: 974,583). Consequently, the arrangement is deemed to be an equity-settled share-based payment arrangement under IFRS 2 Share-based payments. There is no charge to the income statement as initially the tracker shareholders subscribed to the tracker shares at their fair value. We expect future tracker share settlements to be circa £5.0 million per annum. These settlements may either dilute the earnings of SThree plc's existing ordinary shareholders if funded by new issue of shares or will result in a cash outflow if funded via Employee Benefit Trust shares.[3]

 

Liquidity management

In 2020, cash generated from operations on an adjusted basis increased to £76.9 million (2019: £54.8 million). It represented the net result of reduced adjusted EBITDA offset by the release of working capital as the business slowed down, strong action to manage working capital in the face of the COVID-19 health crisis, reduced taxes paid and reclassification of rent payments to financing activities under the newly implemented standard, IFRS 16 Leases.

Capital expenditure increased to £5.3 million (2019: £4.6 million). The Group made only essential capital investments to support the ongoing pursuit of strategic priorities under the fast-evolving market conditions.

Income tax paid decreased to £10.5 million (2019: £12.9 million), and dividend payments reduced to £6.7 million (2019: £18.8 million) as a result of the withdrawal of the proposed final 2019 dividend. The Group paid £13.6 million in rent (2019: £14.6 million) and £0.4 million (2019: £0.9 million) in net interest cost in the year. The Group paid £2.0 million (2019: £2.5 million) for the purchase of its own shares to satisfy employee share schemes in future periods. Cash inflows of £0.9 million (2019: £0.3 million) were generated from Save As You Earn employee schemes. Foreign exchange had an immaterial impact.

Overall, in 2020, the Group free cash conversion ratio increased to 178% on an adjusted basis compared to the prior year of 68%, primarily reflecting improved working capital. We started the period with net cash of £10.6 million and closed the period with net cash of £49.9 million.

Borrowings

On 30 November 2020, the Group had total accessible liquidity of £154.9 million. This was made up of £49.9 million net cash, a £50.0 million Revolving Credit Facility ('RCF'), which is committed to 2023, a £5.0 million overdraft and £50.0 million under the Bank of England's COVID Corporate Financing Facility available until March 2021, with none of these debt facilities drawn down at year end. In addition, SThree has a £20.0 million accordion facility as well as a substantial working capital position reflecting net cash due to SThree for placements already undertaken.

At the year end, the funds borrowed under the RCF bear interest at a minimum annual rate of 1.3% above a three-month Sterling LIBOR, giving an average interest rate of 1.3% during the period (2019: 2.0%).

These demonstrate that the Group remains in a strong financial position and has sufficient cash reserves to meet its obligations as they fall due for a period of at least 12 months from the date of signing of these financial statements. The Board therefore considers it appropriate to adopt the going concern basis of accounting in preparing these Consolidated Financial Statements.

 

PRINCIPAL RISKS

Principal risks and uncertainties affecting the business activities of the Group are detailed within the Strategic Report section of the Group's 2020 Annual Report, a copy of which will be available on the Group's website www.sthree.com.

Delivering on our strategy requires all parts of our business to work together. In isolation risk mitigation helps SThree manage specific subjects and areas of the business. However, when brought into our day-to-day activities successful risk management has helped us to maximise our competitive advantage and deliver on our strategic pillars in 2020. Whilst the ultimate responsibility for risk management rests with the Board, the effective day-to-day management of risk is in the way we do business and our culture.

Aligning risks and strategy by using risk to help make the right strategic decisions - in order to deliver our strategy and competitive advantage throughout the business we must ensure that we maintain a balance between safeguarding against potential risks and taking advantage of all potential opportunities.

 

 

 

 

 

 

 

consolidated income statement

for the year ended 30 November 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

 

Before exceptional items

Exceptional items

Total

Before exceptional items

Exceptional items

Total

  Note

£'000

£'000

£'000

£'000

£'000

£'000

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

2

1,202,622

-

1,202,622

1,324,703

-

1,324,703

Cost of sales

(894,047)

-

(894,047)

(986,707)

-

(986,707)

 

 

 

 

 

 

 

 

 

Net fees

2

308,575

-

308,575

337,996

-

337,996

Administrative (expense)/income

3

(275,594)

468

(275,126)

(275,592)

(2,273)

(277,865)

Impairment losses on financial assets

3

(1,689)

-

(1,689)

(2,376)

-

(2,376)

 

 

 

 

 

 

 

 

 

Operating profit

 

 

31,292

468

31,760

60,028

(2,273)

57,755

 

 

 

 

 

 

 

 

 

Finance costs

 

 

(1,279)

-

(1,279)

(1,009)

-

(1,009)

Finance income

 

 

114

-

114

55

-

55

 

 

 

 

 

 

 

 

 

Profit before income tax

 

30,127

468

30,595

59,074

(2,273)

56,801       

Income tax (expense)/benefit

4

(11,744)

(89)

(11,833)

(15,908)

428

(15,480)

 

 

 

 

 

 

 

 

 

Profit for the year from continuing operations

 

18,383

379

18,762

43,166

(1,845)

41,321

Discontinued operations

5

 

 

 

 

 

 

Loss after tax for the year from discontinued operations

 

(1,809)

-

(1,809)

(2)

-

(2)

 

 

 

 

 

 

 

 

 

Profit for the period attributable
to owners of the Company

16,574

379

16,953

43,164

(1,845)

41,319

 

 

 

 

 

 

 

 

 

Earnings per share

7

pence

pence

pence

pence

pence

pence

Basic

 

 

12.5

0.3

12.8

33.2

(1.4)

31.8           

Diluted

 

 

12.2

0.3

12.5

32.3

(1.4)

30.9

 

 

 

 

 

 

 

 

 

Earnings per share for continuing operations

7

 

pence

pence

pence

pence

pence

pence

Basic

 

 

13.9

0.3

14.2

33.2

(1.4)

31.8

Diluted

 

 

13.5

0.3

13.8

32.3

(1.4)

30.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above Consolidated Income statement should be read in conjunction with the accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated statement of comprehensive income

for the year ended 30 November 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

 

 

 

 

 £'000

 £'000

 

 

 

 

 

 

Profit for the year

 

 

 

16,953

41,319

 

 

 

 

 

 

Other comprehensive income/(expense):

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

 

Exchange differences on retranslation of foreign continuing operations

 

 

 

2,955

          (3,580)

Exchange differences on translation of discontinued operations

 

 

 

(228)

(312)

Items that will not be subsequently reclassified to profit or loss:

 

 

 

 

 

Net loss on equity instruments at fair value through other comprehensive income

...

 

 

(12)

(1,996)

 

 

 

 

 

 

Other comprehensive income/(loss) for the year (net of tax)

 ...

 

2,715

         (5,888)

 

 

 

 

 

 

Total comprehensive income for the year attributable to owners of the Company

19,668

          35,431

 

 

 

Total comprehensive income for the year attributable to owners of the Company arises from:

 

 

Continued operations

21,705

35,745

Discontinued operations

(2,037)

(314)

 

19,668

35,431

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

consolidated statement of financial position

as at 30 November 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 November

30 November

 

 

 

 

2020

2019

 

 

Note

 

 £'000

 £'000

ASSETS

 

 

 

 

 

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

 

 

40,818

6,804

Intangible assets

 

 

 

4,409

8,031

Investments

 

 

 

1

13

Deferred tax assets

 

 

 

1,482

              4,167

 

 

 

 

46,710

            19,015

 

 

 

 

 

 

Current assets

 

 

 

 

 

Trade and other receivables

 

 

 

237,042

          270,350

Current tax assets

 

 

 

377

624

Cash and cash equivalents

 

8

 

50,363

            15,093

 

 

 

 

287,782

          286,067

 

 

 

 

 

 

Total assets

 

 

 

334,492

          305,082

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

Equity attributable to owners of the Company

 

 

 

 

 

Share capital

 

10

 

1,330

              1,326

Share premium

 

10

 

33,026

            32,161

Other reserves

 

 

 

(118)

             (8,338)

Retained earnings

 

 

 

94,279

            91,622

Total equity

 

 

 

128,517

            116,771

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Bank overdraft

 

8

 

468

              4,538

Trade and other payables

 

 

 

157,499

          172,357

Lease liabilities

 

1,9

 

12,078

-

Provisions

 

 

 

9,915

              8,275

Current tax liabilities

 

 

 

-

             1,738

 

 

 

 

179,960

          186,908

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Lease liabilities

 

1,9

 

23,426

-

Provisions

 

 

 

2,589

                1,403

 

 

 

 

26,015

1,403

 

 

 

 

 

 

Total liabilities

 

 

 

205,975

          188,311

 

 

 

 

 

 

Total equity and liabilities

 

 

 

334,492

305,082

 

 

 

 

 

 

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

 

 

 

 

 

 

 

 

 

consolidated statement of changes in equity

 

 

 

 

 

 for the year ended 30 November 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Share
capital

 Share
premium

 Capital
redemption
reserve

 Capital
reserve

 Treasury reserve

 Currency
translation
reserve

 

 Retained
earnings

Total equity attributable to owners of the Company

 

Fair value reserve of equity investments

 

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

£'000

 £'000

 £'000

Balance at 30 November 2018

       1,319

     30,511

172

          878

(7,830)

1,505

-

75,116

101,671

Effect of a change in accounting policy

-

-

-

-

-

-

-

(2,344)

(2,344)

Restated total equity at 1 December 2018

1,319

30,511

172

878

(7,830)

1,505

-

72,772

99,327

Profit for the year

            -  

            -  

            -  

            -  

            -  

            -  

-

    41,319

41,319

Other comprehensive loss for the year

            -  

            -  

            -  

            -  

            -  

(3,892)

(1,996)

            -  

            (5,888)

 

 

 

Total comprehensive income for the period

            -  

            -  

            -  

            -  

            -  

         (3,892)

(1,996)

     41,319

       35,431

Dividends paid to equity holders (note 6)

            -  

            -  

            -  

            -  

            -  

            -  

-

(18,778)

         (18,778)

Distribution to tracker shareholders

            -  

            -  

            -  

            -  

            -  

            -  

-

(218)

       (218)

Settlement of vested tracker shares

5

1,325

-

-

3,245

-

-

(4,419)

156

Settlement of share-based payments

             2

         325

            -  

            -  

2,086

            -  

-

(2,086)    

327

Purchase of own shares by Employee Benefit Trust (note 10)

            -  

            -  

            -  

            -  

(2,506)

            -  

-

-

(2,506)

Credit to equity for equity-settled share-based payments

            -  

            -  

            -  

            -  

            -  

            -  

-

       2,681

          2,681

Deferred tax on share-based payment transactions

-

-

-

-

-

-

-

351

351

Total movements in equity

7

         1,650

            -  

            -  

       2,825

          (3,892)

(1,996)

    (18,850)

         (17,444)

Balance at 30 November 2019

1,326

32,161

172

878

(5,005)

(2,387)

(1,996)

91,622

116,771

Effect of a change in accounting policy (note 1)

-

-

-

-

-

-

-

(978)

(978)

Restated total equity at 1 December 2019

1,326

32,161

172

878

(5,005)

(2,387)

(1,996)

90,644

115,793

Profit for the year

-

-

-

-

-

-

-

16,953

16,953

Other comprehensive income for the year

-

-

-

-

-

2,727

(12)

-

2,715

Total comprehensive income for the year

-

-

-

-

-

2,727

(12)

16,953

19,668

Transfer of loss on disposal of equity investments through other comprehensive income to retained earnings

-

-

-

-

-

-

1,996

(1,996)

-

Dividends paid to equity holders (note 6)

-

-

-

-

-

-

-

(6,659)

(6,659)

Settlement of vested tracker shares

-

-

-

-

103

-

-

16

119

Settlement of share-based payments

4

865

-

-

5,437

-

-

(5,437)

869

Purchase of own shares by Employee Benefit Trust (note 10)

-

-

-

-

(2,031)

-

-

-

(2,031)

Credit to equity for equity-settled share-based payments

-

-

-

-

-

-

-

916

916

Current and deferred tax on share-based payment transactions

-

-

-

-

-

-

-

(158)

(158)

Total movements in equity

4

865

-

-

3,509

2,727

1,984

3,635

12,724

Balance at 30 November 2020

1,330

33,026

172

878

(1,496)

340

(12)

94,279

128,517

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated statement of cash flows

for the year ended 30 November 2020

 

 

30 November

2020

30 November

2019

 

Note

£'000

£'000

 

 

 

 

Cash flows from operating activities

 

 

 

Profit from continuing operations before tax after exceptional items

 

30,595

56,801

Loss before tax from discontinued operations

 

(1,809)

(2)

Profit before tax

 

28,786

56,799

Adjustments for:

 

 

 

Depreciation and amortisation charge

 

6,391

         6,040

Lease asset depreciation

13,049

             -  

Loss/(gain) on disposal of property, plant and equipment

136

(3)

Impairment of intangible assets

1,124

-

Finance income

 

(114)

             (55)

Finance cost

 

1,293

            1,009

Non-cash charge for share-based payments

 

916

         2,681

Operating cash flows before changes in working capital and provisions

 

 

51,581

66,471

Decrease/(increase) in receivables

 

41,225

        (8,020)

Decrease in payables

 

(20,088)

         (3,712)

Increase/(decrease) in provisions

 

4,175

           (1,589)

 

 

 

 

Cash generated from operations

 

76,893

       53,150

Interest received

 

114

              23

Income tax paid - net

 

(10,504)

        (12,958)

 

 

 

 

Net cash generated from operating activities

66,503

40,215

 

 

 

 

Cash generated from operating activities before exceptional items

66,503

41,904

Net cash outflow from exceptional items

-

        (1,689)

Net cash generated from operating activities

66,503

40,215

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(4,669)

        (3,102)

Purchase of intangible assets

 

(609)

        (1,455)

 

 

 

 

Net cash used in investing activities

(5,278)

        (4,557)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from borrowings

9

50,000

-

Repayment of borrowings

9

(50,000)

(37,428)

Interest paid

 

(481)

           (894)

Lease principal payments

 

(13,579)

-

Proceeds from exercise of share options

 

869

            327

Employee subscription for tracker shares

 

291

536

Purchase of own shares

 

(2,031)

        (2,506)

Dividends paid to equity holders

6

(6,659)

      (18,778)

Distribution to tracker shareholders

 

-

(218)

 

 

 

 

Net cash used in financing activities

 

(21,590)

(58,961)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

39,635

(23,303)

Cash and cash equivalents at beginning of the year

10,555

       33,323

Exchange (losses)/gains relating to cash and cash equivalent

 

(295)

        535

 

 

 

 

Net cash and cash equivalents at end of the year

9

49,895

10,555

 

 

 

 

The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes.

 

Notes to the Financial information

for the year ended 30 November 2020

 

 

  1. Accounting policies      

 

Basis of preparation

The financial information in this preliminary announcement has been extracted from the Group audited financial statements for the year ended 30 November 2020 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 22 January 2021.

The auditors have reported on the Group's financial statements for the years ended 30 November 2020 and 30 November 2019 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 2019 were filed with the Registrar of Companies and those for the year ended 30 November 2020 will be filed following the Company's Annual General Meeting.

In 2020, selected UK subsidiaries were exempt from the requirements of the UK Companies Act 2006 ('the Act') relating to the audit of individual accounts by virtue of s479A of the Act. The Company provides a guarantee concerning the outstanding liabilities of these subsidiaries under section 479C of the Act. 

The Group's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Going concern

The Group's financial statements have been prepared on a going concern basis under the historical cost convention.

The Group's business model has been tested during the recent period of particularly challenging market conditions and has been found to be effective and resilient.

When assessing the Group's ability to continue as a going concern, the Directors reviewed assumptions about the future trading performance, capital expenditure, working capital requirements and available funding facilities contained within the Group's five-year plan. The Directors have also considered the principal risks in the business, credit, market and liquidity risks, including forecast covenant compliance, as well as the other matters discussed in connection with the viability statement that can be found in the Group Annual Report 2020 under Compliance Statements. Further stress testing has been carried out to ensure the Group has sufficient cash resources and complies with bank covenants to continue in operation for at least 12 months from the date of signing this report. This stress testing included severe but plausible scenarios of the shape and severity of economic consequences of enforced lockdown restrictions on the aggregate demand for the Group's services, deterioration in credit risk and days sales outstanding, partially offset by mitigating cost reduction actions. Through this process the Directors have satisfied themselves that the Group will be able to meet its commitments and obligations for at least the next twelve months from the date of this report.

The key assumptions of two severe but plausible scenarios linked to certain principal risks are shown below.

Scenario 1:

The COVID-19 global health crisis and the impact on the global economy have been considered. In this scenario we assume that sales activity in the first half of 2021 is significantly impacted, being down 7% versus H1 2020, the period when the majority of our markets went into lockdown and were significantly impacted in the early stages of the health crisis.

Under 'Scenario 1' the Group forecasts to be in a strong cash position throughout 2021 and Q1 2022 with significant headroom against its banking covenants.

Following this period, it is assumed that there is recovery, and the Group returns to a more normal trading performance in 2022.

Scenario 2:

Under 'Scenario 2' we extended the impact of COVID-19 with an additional wave of lockdown restrictions and demand reductions for the period from August to the end of November 2021. Sales activity for Q1 and Q2 mirror the performance of 'Scenario 1'. The Q3 and Q4 impact is further offset by proportionate mitigating cost reduction actions.

Under 'Scenario 2' the Group forecasts to be in a strong cash position throughout 2021 and Q1 2022 with significant headroom against its banking covenants.

Following this period, it is assumed that there is recovery, and the Group returns to a more normal trading performance in 2022.

 

The results of the stress testing demonstrated that due to the Group's significant free cash flow, strong balance sheet, immediately accessible liquidity of £154.9 million (falling to £104.9 million on 23 March 2021 when the Group's access to the Bank of England's COVID-19 Corporate Financing Facility expires), and the Board's ability to adjust the cost base further, including the discretionary share buyback programme, it would be able to withstand the impact and remain cash generative.

Based on the above, together with their knowledge and experience of the recruitment services industry and STEM markets, the Directors continue to adopt the going concern basis in preparing the financial statements for the year ended 30 November 2020.

 

 

Significant accounting policies  

The same accounting policies, presentation and computation methods are followed in this preliminary announcement as in the preparation of the Group's financial statements. The Group's principal accounting policies, as set out below, have been consistently applied in the preparation of these financial statements of all the periods presented, except where otherwise indicated.

 

New standards and interpretations 

A number of new or amended standards became applicable for the current reporting period. None of these, however, other than the adoption of IFRS16 Leases, had a significant impact on the Group's accounting policies or the Consolidated Financial Statements.

IFRS 16 Leases

This note explains the impact of the adoption of IFRS 16 Leases ('IFRS 16') on the Group's financial statements and also discloses the new accounting policies that have been applied from 1 December 2019, where they are different to those applied in prior periods.

(a) Impact on the financial statements

The Group adopted IFRS 16 under the modified retrospective transition approach from 1 December 2019 but has not restated comparatives for the prior reporting period, as permitted under the specific transitional provisions in the standard. As presented below, the reclassifications and the adjustments arising from the adoption of the new leasing standard are therefore recognised in the opening balance sheet on 1 December 2019.

The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included.

 

 

30 November 2019

Adjustments on adoption of

IFRS 16

1 December

2019

 

 

£'000

£'000

£'000

Non-current assets

 

 

 

 

Property, plant and equipment

 

6,804

42,835

49,639

Deferred tax assets

 

4,167

342

4,509

 

 

10,971

43,177

54,148

 

 

 

 

 

Current liabilities

 

 

 

 

Lease liabilities

 

-

11,627

11,627

Provisions

 

8,275

(1)

8,274

 

 

8,275

11,626

19,901

 

 

 

 

 

Non-current liabilities

 

 

 

 

Lease liabilities

 

-

31,392

31,392

Provisions

 

1,403

1,137

2,540

 

 

1,403

32,529

33,932

 

 

 

 

 

Equity

 

 

 

 

Retained earnings

 

91,622

(978)

90,644

 

 

(b) Accounting policies applied from 1 December 2019

From 1 December 2019, leases, from a lessee perspective, are recognised as a right-of-use asset and a corresponding lease liability at the date when the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a net present value basis and are recognised as part of 'Property, plant and equipment', 'Current lease liabilities', and 'Non-current lease liabilities' in the statement of financial position, respectively.

Lease liabilities include the net present value of the following lease payments:

a) fixed payments less any lease incentives receivable;

b) variable lease payments that are based on an index or a rate;

c) amounts expected to be payable by the lessee under residual value guarantees, if any;

d) the exercise price of a purchase option if the Group is reasonably certain it will exercise that option; and

e) payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

The lease payments are discounted using the interest rate implicit in the lease (if that rate can be determined), or the incremental borrowing rate ('IBR'), being the rate, the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. In determining the incremental borrowing rate to be used, the Group applies judgement to establish the suitable reference rate and credit spread. IBR was calculated at the transition date of 1 December 2019.

Each lease payment is allocated between the liability and finance costs, within finance costs in the income statement.

Right-of-use assets are measured at cost comprising the following:

a) the amount of the initial measurement of lease liability;

b) any lease payments made at or before the commencement date less any lease incentive received;

c) any initial direct costs; and

d) any restoration costs.

 

The right-of-use assets are depreciated over the shorter of the assets' useful life and the lease term on a straight-line basis.

The Group does not apply the recognition exemption to short-term leases or leases of low value assets, as permitted by the standard.

In determining the lease terms, the Directors consider all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise termination option. Extension options (or periods after termination option) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

Other amendments and interpretations

The Group has adopted the following other amendments and interpretations which were issued by the IASB that are effective for accounting periods beginning on 1 December 2019:

- Prepayment features with negative compensation - amendments to IFRS 9;

- Long-term interest in associates and joint ventures - amendments to IAS 28;

- Annual improvements to IFRS standards 2015-2017 cycle;

- Plan amendment, curtailment or settlement - amendments to IAS 19; and

- Interpretation 23 - uncertainty over income tax treatments.

The above other amendments and interpretations that came into effect on 1 December 2019 did not have a material impact on the consolidated financial statements of the Group.

The following other amendments and interpretations are issued by the IASB that are effective from 1 January 2021 but will not have a material impact on the Group's financial statements:

- Definition of a business - amendments to IFRS 3;

- Definition of material (amendments to IAS 1 and IAS 8); and

- Interest Rate Benchmark Reform - phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).

 

 

  1. Segmental analysis 

        

The Group's operating segments are established on the basis of those components of the Group that are regularly reviewed by the Group's chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Group's business is considered primarily from a geographical perspective.

The Directors have determined the chief operating decision maker to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief People Officer and the Chief Sales Officer, with other senior management attending via invitation.

In the current year, the Group changed its reporting structure, as shown in the tables below, in line with the updated strategy announced at its 2019 Capital Markets Day and internal management structures. As a result, the Group segments the business into the following reportable regions: DACH, EMEA excluding DACH, USA and APAC, as well as presents an analysis of net fees by its five key markets: Germany, the Netherlands, USA, the UK and Japan. On a sector basis, Engineering now includes Energy, which was previously reported separately. The comparative numbers have been restated in accordance with the new reporting structure.

DACH region comprises Germany, Switzerland and Austria. 'EMEA excluding DACH' region comprises primarily Belgium, France, the Netherlands, Spain, the UK, Ireland, and Dubai. All these sub-regions were aggregated into two separate reportable segments based on the possession of similar economic characteristics.

Countries aggregated into DACH and separately into 'EMEA excluding DACH' generate a similar average net fees margin and long-term growth rates, and are similar in each of the following areas:

- the nature of the services (i.e., recruitment/candidate placement);

- 'the methods used in which they provide services to clients (freelance contractors, employed contractors, and permanent candidates); and

- the class of candidates (candidates, who we place with our clients, represent skillsets in Science, Technology, Engineering and Mathematics disciplines).

The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 in the summary of significant accounting policies in the Group's 2019 annual financial statements.

Revenue and net fees by reportable segment 

The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as 'net fees' in the management reporting and controlling systems. Net fees is the measure of segment profit comprising revenue less cost of sales.                                                                     

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

 

 

 

 

 

                    Revenue

                    Net fees

 

 

 

2020

2019

2020

2019

 

 

 

£'000

£'000

£'000

£'000

EMEA excluding DACH

588,787

693,099

117,629

141,172

DACH

 

371,915

      375,735

105,764

109,347

USA

 

227,523

237,702

77,243

76,706

APAC

14,397

18,167

7,939

10,771

 

 

 

 

 

 

 

 

 

 

1,202,622

1,324,703

308,575

337,996     

    

EMEA excluding DACH includes Belgium, Dubai, France, Ireland, Luxembourg, Netherlands, Spain and UK.

DACH includes Austria, Germany and Switzerland.

APAC includes Hong Kong, Japan, Malaysia and Singapore.

 

Other information      

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

 

   

 

 

 

                       Revenue

                        Net fees

 

 

 

2020

2019

2020

2019

 

 

 

£'000

£'000

£'000

£'000

Germany

 

336,259

342,345

96,866

101,480

Netherlands

 

234,547

261,429

47,314

52,396

USA

 

227,523

237,702

77,243

76,706

UK

 

186,146

236,323

35,057

43,817

Japan

 

7,044

9,000

5,899

7,812

RoW(1)

 

211,103

237,904

46,196

55,785

 

 

 

 

 

 

 

 

 

 

1,202,622

      1,324,703

308,575

      337,996

(1) RoW (Rest of the World) includes all countries other than listed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                Non-current assets

 

 

 

 

 

30 November

30 November

 

 

 

 

 

2020

2019

 

 

 

 

 

£'000

£'000

UK

 

 

 

 

16,255

        11,160

Germany

 

 

 

10,725

949

USA

 

 

 

6,466

             600

Netherlands

 

 

 

3,928

            596

Japan

 

 

 

118

43

RoW(1)

 

 

 

7,736

             1,500

 

 

 

 

 

 

 

 

 

 

 

 

45,228

        14,848

(1) RoW (Rest of the World) includes all countries other than listed.

 

Non-current assets from discontinued operations included in RoW amount to £nil (2019: £0.2 million).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

      

 

 

 

         Revenue

         Net fees

 

 

 

2020

2019

2020

2019

 

 

 

£'000

£'000

£'000

£'000

Brands

 

 

 

 

 

Computer Futures

 

376,053

400,184

95,530

103,533

Progressive

 

372,568

430,390

92,295

101,234

Real Staffing Group

 

253,682

255,951

75,884

76,473

Huxley Associates

 

200,319

238,178

44,866

56,756

 

 

 

 

 

 

 

 

 

 

1,202,622

1,324,703

308,575

337,996

 

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

 

   Revenue

                   Net fees

 

 

2020

2019

2020

2019

 

 

£'000

£'000

£'000

£'000

Recruitment classification

 

 

 

Contract

 

1,124,817

1,236,459

233,343

251,410

Permanent

 

77,805

88,244

75,232

86,586

 

 

 

1,202,622

1,324,703

308,575

337,996

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

Net fees

 

 

2020

2019

2020

2019

 

 

£'000

£'000

£'000

£'000

Sectors

 

 

 

 

Technology

591,333

630,369

138,234

150,602

Engineering

271,861

308,286

68,083

72,985

Life Sciences

223,655

207,738

71,604

67,841

Banking & Finance

101,196

147,631

25,760

36,611

Other

14,577

30,679

4,894

9,957

 

 

 

 

 

 

 

 

1,202,622

      1,324,703

308,575

337,996


Other includes Procurement & Supply Chain and Sales & Marketing. Engineering includes Energy.

 

 

  1. ADMINISTRATIVE EXPENSES

 

  1. Operating profit from continuing operations is stated after charging/(crediting):

 

2020

2019

 

£'000

£'000

Staff costs

209,397

211,029

Depreciation

16,285

3,000

Amortisation

2,786

2,982

Loss/(gain) on disposal of property, plant and equipment

14

(3)

Impairment of intangible assets

1,124

-

Loss on disposal of intangible assets

-

51

Impairment losses on financial assets

1,689

2,376

Service lease charges (2019: operating lease charges)

 

 

1,892

12,415

402

1,843

Foreign exchange losses/(gains)

677

(518)

Other operating expenses (see 3(b))

1,666

2,273

 

 

 

 

  1. Other operating expenses:

 

 

 

 

 

 

2020

2019

 

 

 

 

 

£'000

£'000

 

 

 

 

(468)

2,273

 

 

 

 

 

      Business optimisation expenses

 

 

 

3,300

-

      Government assistance income

 

 

 

(1,166)

-

Total

 

 

 

1,666

2,273

 

 

 

 

 

 

Net exceptional income/expense

In line with the Group's prior year practice and accounting policy, the following items of material or non-recurring nature were excluded from the directly reconcilable IFRS measures.

Support function relocation

This is a legacy programme, which was partially funded by a grant receivable from Scottish Enterprise. The Group is entitled to the grant over several years until 2021, subject to the terms of the grant being met. In 2020, the Group recognised £0.5 million in grant income (2019: net exceptional income of £0.1 million, comprising £0.6 million in personnel and property costs less government grant income of £0.7 million).

Senior leadership restructuring

In 2019, several key changes were made to the senior leadership structure within the EMEA excluding DACH region. In 2020, true-up of £0.1 million (2019: £1.2 million) in remaining charges was recognised.

CEO change

In the prior period, operating expenses classified as exceptional also included costs of £1.2 million associated with the appointment of the new CEO.

 

Impact of COVID-19

The COVID-19 had implications on certain items of income and expense in the Group Consolidated Financial Statements, affecting the profit before tax for the year ended 30 November 2020.

Business optimisation expense

In response to the significantly changed economic environment and increased risk and uncertainty caused by COVID-19, the Directors took steps to right size the structure and strategy of certain local businesses. These changes resulted in a charge of £3.3 million (2019: £nil) that was recognised in the current year.

Government assistance income

The Group took advantage of job retention schemes launched by local national Governments in Australia, Belgium, France, Hong Kong, Japan, Luxembourg, Singapore and Spain, whereby it was reimbursed for a portion of salaries of furloughed staff. In 2020, the Group, recognised a total benefit, including the associated payroll savings, of £1.2 million (2019: £nil). The compensation was presented as a deduction in reporting the related staff expense. The Group decided to repay UK furlough money as performance exceeded Directors' expectations.

 

  1. Taxation

 

  1. Analysis of tax charge for the year

 

 

 

 

                         2020

 

 

2019

 

 

 

 

 

Before

exceptional

items

Exceptional items

Total

Before exceptional items

Exceptional items

Total

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

Current income tax

 

 

 

 

 

 

 

Corporation tax charged/(credited) on profits for the year

8,651

89

              8,740

15,917

(428)

              15,489

 

Adjustments in respect of prior periods

438

-

     438

1,110

-

     1,110

 

 

 

 

 

 

 

 

 

 

 

Total current tax charge/(credit)

 

9,089

89

9,178

17,027

(428)

16,599

Deferred income tax

 

 

 

 

 

 

 

Origination and reversal of temporary differences

 

2,582

-

           2,582

(678)

-

           (678)

Adjustments in respect of prior periods

73

-

73

(441)

-

(441)

Total deferred tax charge/(credit)

2,655

-

2,655

(1,119)

-

(1,119)

Total income tax charge/(credit) in the Consolidated Income Statement

11,744

89

        11,883

15,908

(428)

        15,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 The total income tax charge relates to continuing operations.

 

  1. Reconciliation of the effective tax rate

 

The Group's tax charge for the year exceeds (2019: exceeds) the UK statutory rate and can be reconciled as follows:

 

 

 

 

 

               2020