SThree PLC — Earnings Release 2015

Jan 25, 2016

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RNS Number : 7666M

SThree plc

25 January 2016

25 January 2016

SThree plc

("SThree" or the "Group")

Final results for the year ended 30 November 2015

SThree, the international specialist staffing business, is today announcing its final results for the year ended 30 November 2015.

FINANCIAL HIGHLIGHTS

	2015		2014(2)	Variance
	Adjusted(1)	As reported(2)		Adjusted	As reported
	£m	£m	£m	%	%
Revenue	848.8	848.8	746.9	+17%*	+14%
Gross profit	235.7	235.7	218.2	+11%*	+8%
Operating profit	41.5	38.4	29.8	+39%	+29%
Profit before taxation	40.8	37.7	29.3	+39%	+29%
Basic earnings per share	23.2p	20.8p	16.3p	+42%	+28%
Proposed final dividend	9.3p	9.3p	9.3p	-	-
Total dividend (interim and final)	14.0p	14.0p	14.0p	-	-
Operating profit conversion ratio	17.6%	16.3%	13.7%	+3.9% pts	+2.6% pts

(1)Adjusted for the impact of £3.1m of costs in relation to the restructuring of the Energy business and the impairment and accelerated amortisation of certain IT assets.

(2) The figures presented above exclude the impact of exceptional items (2015: pre-tax income £0.4m, 2014: pre-tax net costs £5.3m).

OPERATIONAL HIGHLIGHTS

·      Strong full year performance with excellent operating profit growth and an improved cash performance.

·      Adjusted operating profit up 39% year on year ("YoY") to £41.5m (2014: £29.8m) with adjusted operating profit conversion ratio  up 3.9% points to 17.6% (2014: 13.7%)

·      Group gross profit ("GP") up 11%* YoY and ahead by 17%* excluding Energy

o  Continued strong growth across ICT (+19%* YoY) and Life Sciences (+20%* YoY) offsetting weak performance in Energy (-19%* YoY)

o  Continued strong performance in the Americas (+26%* YoY), now representing 19% of Group GP (2014: 15%)

·      Contract GP up 17%* YoY and ahead by 21%* excluding Energy

o  Continued strong growth in contractor runners, up 11% YoY to 8,412 at year-end (2014: 7,573), giving a strong platform for 2016

o  Contract now accounts for 64% of Group GP (2014: 61%)

·      Permanent GP up 3%* YoY; with Permanent GP excluding Energy up 11%* YoY

·     Group year-end sales headcount up 8% YoY at 2,244 (2014: 2,081) and average sales headcount up 6% YoY at 2,117 (2014:  2,002) driven by increased Contract and reduced Permanent heads

·      Good progress on productivity per consultant, up 6%* YoY

·     Strongly improved balance sheet position with year-end net cash of £6.2m, up £16.1m YoY (2014: net debt of £9.9m), despite  adverse FX movements.

* Variances in constant currency

Gary Elden, CEO, commented: "Our strong 2015 performance demonstrates the benefits of the geographic and sectoral diversity of our operations.  GP growth of 11%* year on year has been converted into an excellent growth in adjusted operating profit of 39%, with performances from our ICT and Life Sciences businesses being particularly pleasing.

"Our Contract business performed strongly, with Contract GP increasing by 17%* year on year and enters the year in good shape with a record Contract book.

"Our Americas business produced another excellent performance with GP up by 26%* year on year driven by growth in ICT, Life Sciences and Banking & Finance. Our US growth prospects are exciting and we are continuing to invest for the future adding further space in New York and new offices in Austin and Minneapolis during H1 2016.

"While the trading environment remains broadly positive in the majority of our territories, we note that the global macro-economic uncertainties we identified in our last trading update have increased further recently, with greater risks to global growth. Oil & gas market conditions remain challenging and FX volatility persists.

"Against this backdrop, we will continue to invest selectively in our high performing teams around the world to grow our business and capitalise on market opportunities, especially in Contract, ICT, Life Sciences and the Americas. The expanded Contract book, combined with increased investment in our Contract infrastructure and teams give us a strong base from which to grow in the coming years."

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 - Standard International Access
	0808 109 0700 - UK Toll Free
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 Statement on Friday 11 March 2016.

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 7,000 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 2,900 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

We delivered a strong performance as we continued to benefit from the geographic and sectoral diversity of our operations. Group GP for the year was up 11%*, driven by positive results from our continued investment in Contract, our drive to build productivity in Permanent and our ability to capitalise on opportunities in key markets, especially the Americas and Continental Europe.  We responded decisively to rebalance our sector portfolio in the face of challenging conditions in the Energy recruitment market and the strong overall performance demonstrates the inherent benefit of remaining well-diversified by sector and geography, with strong growth in ICT and Life Sciences helping to offset the Energy weakness.

Increased GP was converted into an excellent growth in adjusted operating profit of 39%. Reported operating profit grew by 29%. The growth in profit, despite adverse conditions in the Energy market, reflects a combination of headcount and productivity growth along with savings from the closure of loss making offices in FY2015 and prior years. Headcount build also remained modest as we transferred a number of our Permanent Energy Consultants to alternative sectors and rebalanced the business.

Our Contract business performed strongly, with Contract GP increasing by 17%* YoY. The final quarter was the eighth consecutive quarter of double digit GP growth achieved by Contract since it was given greater strategic focus. Although comparatives for the final quarter were particularly strong, we exit the year in good shape with a record Contract book.

We believe our performance during the year is a testament to the strength of our management team, our strategy and the flexibility and commitment of our hardworking colleagues. 

Breakdown of GP	FY 2015 %	FY 2014 %
Contract/ Permanent Split
Contract	64%	61%
Permanent	36%	39%
	100%	100%
Geographical Split
UK&I	30%	30%
Continental Europe	44%	46%
Americas	19%	15%
Asia Pacific & Middle East	7%	9%
	100%	100%
Sector Split
ICT	41%	39%
Banking & Finance	18%	18%
Energy	11%	15%
Engineering	9%	9%
Life Sciences	19%	17%
Other	2%	2%
	100%	100%

Operating review

Business mix

Contract is well suited to our STEM market focus and geographical mix. It remained the key area of focus throughout the year. Although both divisions were adversely impacted by the weaker Energy sector, we achieved excellent growth in overall Contract GP and robust growth in Permanent yields.

Contract GP, which represented 64% of GP, increased by 17%* YoY (up 21%* excluding Energy). This was driven by a 15% increase in average Contract headcount and a 2%* improvement in consultant yields.  The Contract exit rate for 2015 was strong, with period end runners at a record level at 8,412, up 11% (up 15% excluding Energy). This strong runner position, combined with period end contract consultant headcount up 16% YoY, provides a strong platform to build from in 2016.  Year-end gross profit per day rates were up 3%*, largely due to a change in the geographical and sector mix.  Building our Contract teams will continue to be a key focus in 2016.

Permanent GP, which represented 36% of Group GP, grew by 3%*, impacted significantly by the sharp downturn in the Energy market (Group Permanent GP grew by 11%* excluding Energy). This was reflected in a 9%* increase in average yields, offset by a 6% decrease in average headcount. Average Permanent fees were up 3%* YoY. Period end consultant headcount in our Permanent business was down 7% largely due to the reduction in our Energy business. We expect to increase investment in Permanent selectively in 2016, where there is evidence of improving candidate and client confidence, but our primary focus will be on improving yields.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Group	FY 15	+17%	+3%	+11%	64%	36%	+15%	(6%)	+5%

Regional growth

We saw growth across our international foot print, building scale and critical mass in our existing 41 offices in 15 countries, of which 29 are outside of the UK.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Continental Europe	FY 15	+19%	+6%	+14%	64%	36%	+16%	(6%)	+5%

Continental Europe is our largest region, with the key contributors to our business being Germany, Netherlands, Belgium, France, Switzerland and Luxembourg.  These regional markets vary significantly in their level of maturity and competition, with Germany remaining the most significant structural growth opportunity.

This region delivered excellent growth in the year, up 14%* with growth across all the main countries. We saw double digit growth in contract runners YoY which is reflected in the strong exit rate in Contract GP, as well as improved consultant productivity in Permanent.  Highlights in the region included the Engineering sector, delivering growth of 33%* and the ICT sector up 17%*. 

Consultant period end headcount was up 11% with Contract up 20% and Permanent up 2%.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
UK&I	FY 15	+5%	+4%	+5%	73%	27%	+8%	0%	+5%

The UK&I is our longest established region and the business is increasingly Contract focused as we made the most of opportunities in the STEM market, whilst reducing our exposure to Energy.

GP was up 5%* YoY, with strong double digit growth in the first half of the year but tougher prior year comparatives resulting in a weaker Q4. Highlights included the ICT sector delivering growth of 14%* and Life Sciences up 17%*. UK&I was impacted by the downturn in the Energy market which was down 36%* YoY and now represents 6% of the region (2014: 9%). 

The restructuring of our UK and Africa Energy business, which was predominantly in upstream oil and gas, was completed during the year and we are now ready to take full advantage of the supportive market conditions in the broader UK & Ireland economies.  With a new managing director appointed in the region during Q4 2015, along with another managing director focused specifically on the Banking & Finance market across UK&I and Continental Europe, we are committed to delivering an improved performance in 2016. 

Consultant period end headcount was up 3% with Contract up 8% and Permanent down 4%.  The UK&I business suffered from higher churn in the year than it has done historically and staff retention is a key focus for the new leadership team. We also expect productivity to improve in 2016, although new government rules on NHS procurement are likely to impact the performance of our ICT business in the UK.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Americas	FY 15	+44%	+6%	+26%	61%	39%	+39%	+7%	+23%

The Americas is our fastest growing region and is mainly represented by the USA, the world's largest specialist STEM staffing market. The Americas represented 19% of Group GP (2014: 15%) with GP up 26%* YoY, despite a significant change in sector mix in response to the adverse Energy market. Growth in the USA continues to be highly encouraging and we see significant opportunities to maintain these high levels of growth in the foreseeable future.  We have an excellent management team including experienced local executive and advisory directors to complement our home grown talent.  Leveraging our increasing knowledge and experience of this exciting market, we aim to grow aggressively in our existing offices and by replicating our business model in a number of new locations.  If appropriate businesses are identified, we may acquire to help further accelerate our US growth.

Our Americas business is moving more towards Contract in response to the needs of its clients, with Contract GP up 44%* and the year-end runner book up 21% YoY. This is all the more impressive performance considering that Energy was down 15%* YoY. We have countered the challenge on Energy by investing heavily in ICT via our Computer Futures brand, which grew very strongly.

Permanent GP also had a strong year with growth of 23%* (excluding Energy) and fees remained strong, reflecting the exceptional service we continue to provide to our clients in the region.

The major contributors to growth in the region were the Life Sciences and Banking & Finance sectors, up 48%* and 13%*, respectively. ICT outpaced all sector growth, albeit from a low base, and represented 10% of GP. We see significant growth opportunities for all of these sectors in 2016. 

			GP								Average Consultant
			Growth YoY						FY 2015 Mix		Growth YoY
			Cont		Perm		Total		Cont	Perm	Cont	Perm	Total
Asia Pacific & Middle East		FY 15		+10%		(13%)		(6%)	35%	65%	(5%)	(21%)	(17%)

Our Asia Pacific business principally includes Australia, Singapore, Japan and Hong Kong and the Middle East mainly covers Dubai and Qatar.  The business was significantly impacted by the downturn in the Energy market and this is reflected in the drop in GP in the year, down 6%*.  The Energy sector was down 39%* YoY and now represents 28% of the region (2014: 43%).  Asia Pacific is also feeling the impact of slowing growth in China and the reduced demand for energy, mining and minerals in Australia.  The Asia Pacific market is predominantly a Permanent market outside of Australia.  The division is focused on building its non-energy sector portfolio and delivering steady, profitable growth. The Middle East has shown a promising exit rate on Contract.

Sector diversification and expansion

In response to market demands and opportunities during the year, we continued to make significant progress in diversifying our five core sectors: ICT, Banking & Finance, Energy, Engineering and Life Sciences.  While our results continued to be impacted by the ongoing weak activity in the Energy market, all other sectors performed strongly, with ICT up 19%* YoY and Life Sciences up 20%* YoY.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
ICT	FY 15	+22%	+13%	+19%	71%	29%	+23%	+7%	+17%

ICT is our largest and most established sector and consequently the majority of its business is in the more mature UK and European markets. GP for the year was up 19%* YoY with exciting growth in the Americas, where we expect to continue to grow rapidly in this vast domestic specialist staffing market.

			GP								Average Consultant
			Growth YoY						FY 2015 Mix		Growth YoY
			Cont		Perm		Total		Cont	Perm	Cont	Perm	Total
Banking & Finance		FY 15		+18%		(2%)		+7%	49%	51%	+8%	(13%)	(6%)

Our Banking & Finance sector had a good overall performance in the year, with GP up 7%* YoY, including a strong performance from Contract, particularly in the Americas.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Energy	FY 15	(4%)	(44%)	(19%)	74%	26%	+1%	(49%)	(25%)

While overall conditions in the Energy market remain challenging, our Contract business is proving, as expected, to be more resilient. Energy GP over the year was down 19%* YoY. Permanent GP was down 44%* YoY and Contract GP down 4%* YoY, broadly in line with headcount down 78% in Permanent and 13% in Contract since the start of the year. During the year we reshaped and right-sized our Energy teams including exiting our Russia business and reducing our exposure to the Upstream Permanent market in particular. 

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Engineering	FY 15	+11%	+16%	+12%	65%	35%	(4%)	+17%	+5%

The Engineering sector saw strong growth across both Contract and Permanent, albeit against weaker comparators, with total GP up 12%* YoY and a strong performance across Continental Europe in particular.

		GP					Average Consultant
		Growth YoY			FY 2015 Mix		Growth YoY
		Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Life Sciences	FY 15	+20%	+20%	+20%	58%	42%	+24%	+9%	+15%

Life Sciences GP was up 20%* YoY, with strong performances across both Contract and Permanent, particularly in the Americas and Asia Pacific & Middle East.

Headcount

Group sales headcount at 30 November 2015 at 2,244 (2014: 2,081) was up 8% YoY (and up 15% excluding Energy). YoY UK&I sales headcount was up 4%, Continental Europe was up 12%, Americas was up 35% and Asia Pacific & Middle East was down 28%, reflecting headcount reductions in its Energy business.

Consultant headcount mix continued to shift in favour of Contract during the year in line with our strategy, with Contract consultant headcount up 16% and Permanent consultant headcount down 7%. At the year-end, Contract consultant headcount represented 58% of total consultant headcount.

Outlook

While the trading environment remains broadly positive in the majority of our territories, we note that the global macro-economic uncertainties we identified in our last trading update have increased further in early 2016, with greater risks to global growth. Oil & gas market conditions remain challenging and FX volatility persists.

Against this backdrop, we will continue to invest selectively in our high performing teams around the world to grow our business and capitalise on market opportunities, especially in Contract, ICT, Life Sciences and the Americas.  The expanded Contract book, combined with increased investment in our Contract infrastructure and teams give us a strong base from which to grow in the coming years.

* in constant currency

CHIEF FINANCIAL OFFICER'S REVIEW

Revenue for the year increased by 17%* to £848.8m (2014: £746.9m) and gross profit ("GP") grew by 11%* to £235.7m (2014: £218.2m). The overall GP margin decreased to 27.8% (2014: 29.2%) as the business continued to remix towards Contract, which represented 64% of GP in 2015 (2014: 61%). The Contract margin has remained robust at 19.8% (2014: 20.0%) while the average contractor GP Day Rate ('GPDR') was up 3%* YoY.

Increased GP converted into a 39% growth in adjusted operating profit, resulting in an improved adjusted conversion ratio, up 3.9 percentage points to 17.6% (2014: 13.7%). Reported operating profit grew by 29%, resulting in a reported conversion ratio of 16.3%, up 2.6 percentage points. The growth in profit, despite a challenging Energy market, reflects the beneficial operational gearing of the business and savings from closing a number of loss making offices in the current and prior years.

Reported operating costs increased by 5% to £197.3m (2014: £188.5m), represented mainly by a 7% increase in Group average headcount and £3.1m of costs incurred in relation to the restructuring of the Energy business and impairment of IT assets, with some savings coming from the closure of loss making offices.

Average total headcount at 2,667 (2014: 2,487) was 7% higher YoY and year-end headcount was 2,847 (2014: 2,578), up 10% YoY, reflecting targeted investment in sales headcount mainly in Contract to support growth opportunities in our stronger markets and sectors, plus investment in support service heads to improve the experience for clients, candidates and consultants. At the year-end, Contract consultant headcount represented 58% of total consultant headcount (2014: 53%).

Adjusted profit before tax ("PBT") for the year was £40.8m (2014: £29.3m), up 39% YoY and statutory PBT after exceptional items was up 59% YoY at £38.1m (2014: £24.0m).

Restructuring and impairments

During the year, we incurred £3.1m of costs on restructuring and right sizing of the Energy business and the impairment and accelerated amortisation of certain IT assets due to a new system implementation. The costs arose as part of decisions made during the ordinary course of business and differed from those separated as 'exceptional' last year which were incurred as a result of a group-wide restructuring. However, due to their collective quantum, the costs have been separately highlighted to provide further information to readers to help 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

These costs resulted in a cash outflow of £0.5m during the year with a further cash outflow of £0.7m expected in FY2016.

Taxation

The taxation charge on reported PBT for the year was £11.4m (2014: £9.1m), representing an effective tax rate ("ETR") of 30% (2014: 31%). 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 ongoing OECD initiatives. While we do not anticipate significant changes based on the announcements to date, we will continue to monitor and assess the impact of any changes as they are implemented.

The ongoing reduction in the UK headline corporate tax rate and the opportunity to utilise unrecognised tax losses is anticipated to result in a gradual reduction in the ETR in the near to medium term.

Earnings per share ("EPS")

Adjusted basic EPS increased by 42% to 23.2p (2014: 16.3p), driven by growth in GP and improved operating profit. Reported basic EPS grew by 28% to 20.8p. The weighted average number of shares used for basic EPS increased by 3% to 127.0m (2014: 123.7m). Reported diluted EPS were 19.9p (2014: 15.1p), up 32%. Share dilution mainly results from various share options in place and unsettled 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

The Board remains committed to a sustainable dividend policy while maintaining a strong financial position to support the required investment in the further growth and development of the business.

The Board has proposed a final dividend of 9.3p per share (2014: 9.3p). When taken together with the interim dividend of 4.7p per share (2014: 4.7p), this brings the total dividend for the year to 14.0p per share (2014: 14.0p). This represents a dividend yield of 4% based on the average share price for the year.

The final dividend, which amounts to circa £12.0m, will be paid, subject to shareholder approval, on 3 June 2016 to shareholders on the register on 29 April 2016.

Share options and tracker share arrangements (Minority Interests or MI Model)

We recognised a share-based payment charge of £4.1m during the year (2014: £2.1m) for the Group's various share-based incentive schemes. This higher charge is primarily due to an improvement in performance against the EPS target in the LTIP schemes.

We also operate a tracker share model to retain key entrepreneurs within the business. Of the vested tracker shares, we settled certain tracker shares during the year for a total consideration of £8.5m (2014: £11.5m) which was determined using a formula in the Articles of Association underpinning the tracker share scheme. We settled the consideration in SThree plc shares by issuing 2.2m new shares. Consequently, the arrangement is deemed as an equity-settled share-based payment scheme under IFRS 2 "Share-based payments", with no charge to the income statement. 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 the existing ordinary shareholders if funded by new issue of shares or will result in cash outflow if funded via treasury shares.

Financial position

The Group's net assets increased to £59.4m at 30 November 2015 (2014: £51.3m), mainly due to the excess of profits over the dividend payments during the year.

The most significant item in the statement of financial position is trade and other receivables. Net trade receivables (including accrued income) decreased by 7% to £150.7m (2014: £161.6m) mainly due to 3 days reduction in Days Sales Outstanding ("DSOs") to 38 days (2014: 41 days), reflecting a greater focus in this area. Trade and other payables increased from £115.0m to £117.0m; however, creditor days decreased to 19 days (2014: 20 days).

Cash flow

We started the period with net debt of £9.9m. Cash flow in the year was strong as we generated cash from operations of £60.3m (2014: £20.1m), mainly due to improved profits, slower growth of the contract runner book and robust working capital management throughout the year. As a result, the reported cash conversion ratio improved by 86 percentage points to 134% (2014: 48%) and on an adjusted basis it improved by 78 percentage points to 126% (2014:  48%). 

The cash outflow on capital expenditure increased to £8.6m (2014: £5.9m) which broadly related to investment in new computer equipment across the Group and software and system development costs as we continue to upgrade our technology platform.

Cash outflow from previously recognised exceptional items was £3.0m (2014: £4.8m) and we received £2.0m on the final earn out for the IT Job Board which we disposed of in 2013. Income taxes paid increased to £10.8m (2014: £9.4m), dividend payments slightly increased to £17.7m (2014: £17.2m) and £1.1m was paid for the purchase of own shares to satisfy future employee share schemes.

We closed the financial year with net cash of £6.2m, despite adverse currency movements of £4.9m (2014: £2.1m), an increase in net cash of £16.1m.

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 which expires in May 2019 and was unutilised at the year-end (2014: utilised £24.0m). In addition, we signed a £5m overdraft facility with RBS during the year. The RCF is subject to conventional covenants and 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 (2014: 1.8%). This resulted in finance costs for the year of £0.8m (2014: £0.6m).

The Group has a notional cash pool between its Eurozone subsidiaries and a UK-based treasury subsidiary.

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 2015, currency movements versus sterling represented a significant headwind for the reported performance in the year. Over the course of the year, exchange rate movements reduced our GP and operating profit by circa £8.0m and £2.7m, 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 2015 GP by £1.1m and £0.5m respectively per annum; and 2015 operating profits by £0.4m and £0.1m respectively per annum.

The Board reviews its currency hedging strategy periodically to ensure that it remains appropriate. The Group does not hold or use derivative financial instruments for speculative purposes.

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.

* in constant currency

SThree plc
Consolidated income statement
For the year ended 30 November 2015
			30 November 2015			30 November 2014
			Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
		Note	£'000	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue		2	848,841	-	848,841	746,924	-	746,924
Cost of sales			(613,123)	-	(613,123)	(528,701)	-	(528,701)
Gross profit		2	235,718	-	235,718	218,223	-	218,223
Administrative expenses		3	(197,316)	-	(197,316)	(188,453)	(5,507)	(193,960)
Gain on disposal of subsidiaries		4	-	377	377	-	205	205
Operating profit		5	38,402	377	38,779	29,770	(5,302)	24,468
Finance income			64	-	64	64	-	64
Finance costs			(751)	-	(751)	(547)	-	(547)
Profit before taxation			37,715	377	38,092	29,287	(5,302)	23,985
Taxation		6	(11,350)	(77)	(11,427)	(9,093)	1,027	(8,066)
Profit for the year attributable to owners of the Company			26,365	300	26,665	20,194	(4,275)	15,919
Earnings per share		8	pence	pence	pence	pence	pence	pence
Basic			20.8	0.2	21.0	16.3	(3.4)	12.9
Diluted			19.9	0.2	20.1	15.1	(3.2)	11.9

SThree plc
Consolidated statement of comprehensive income
For the year ended 30 November 2015
		30 November	30 November
		2015	2014
		£'000	£'000
Profit for the year after exceptional items		26,665	15,919
Other comprehensive loss:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations		(4,194)	(1,592)
Other comprehensive loss for the year (net of tax)		(4,194)	(1,592)
Total comprehensive income for the year attributable to owners of the Company		22,471	14,327
SThree plc
Consolidated statement of financial position
As at 30 November 2015
		30 November	30 November
		2015	2014
	Note	£'000	£'000
Assets
Non-current assets
Property, plant and equipment		5,599	4,219
Intangible assets		11,108	11,080
Deferred tax assets		1,780	3,424
		18,487	18,723
Current assets
Trade and other receivables		157,153	169,270
Current tax assets		3,292	1,361
Cash and cash equivalents	9	6,159	14,071
		166,604	184,702
Total assets		185,091	203,425
Equity and Liabilities
Equity attributable to owners of the Company
Share capital		1,295	1,266
Share premium		23,140	14,470
Other reserves		(11,030)	(5,680)
Retained earnings		46,001	41,290
Total equity		59,406	51,346
Non-current liabilities
Provisions for liabilities and charges		1,133	3,216
Trade and other payables		-	379
		1,133	3,595
Current liabilities
Provisions for liabilities and charges		5,579	8,807
Trade and other payables		117,039	114,583
Current tax liabilities		1,934	1,094
Borrowings	10	-	24,000
		124,552	148,484
Total liabilities		125,685	152,079
Total equity and liabilities		185,091	203,425

SThree plc
Consolidated statement of changes in equity
For the year ended 30 November 2015
		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 1 December 2013		1,240	4,961	168	878	(1,514)	(4,972)	50,854	51,615
Profit for the year ended 30 November 2014		-	-	-	-	-	-	15,919	15,919
Other comprehensive loss for the year		-	-	-	-	-	(1,592)	-	(1,592)
Total comprehensive income for the year		-	-	-	-	-	(1,592)	15,919	14,327
Dividends paid to equity holders	7	-	-	-	-	-	-	(17,177)	(17,177)
Distributions to tracker shareholders		-	-	-	-	-	-	(170)	(170)
Issue of new shares for settlement of vested tracker shares		24	9,191	-	-	-	-	(9,412)	(197)
Settlement of share-based payments		2	318	-	-	-	-	280	600
Treasury shares used for settlement of vested tracker shares		-	-	-	-	1,352	-	(1,306)	46
Credit to equity for equity-settled share-based payments		-	-	-	-	-	-	2,256	2,256
Current and deferred tax on share-based payment transactions	6	-	-	-	-	-	-	46	46
Total movements in equity		26	9,509	-	-	1,352	(1,592)	(9,564)	(269)
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	7	-	-	-	-	-	-	(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	6	-	-	-	-	-	-	(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

SThree plc
Statement of cash flow
For the year ended 30 November 2015
		30 November	30 November
		2015	2014
	Note	£'000	£'000
Cash flows from operating activities
Profit before taxation after exceptional items		38,092	23,985
Adjustments for:
Depreciation and amortisation charge		5,091	5,210
Accelerated amortisation and impairment of intangible assets		1,471	-
Impairment of assets		-	756
Finance income		(64)	(64)
Finance cost		751	547
Loss on disposal of property, plant and equipment	5	38	34
Gain on disposal of subsidiaries	4	(377)	(205)
Non-cash charge for share-based payments		4,134	2,256
Operating cash flows before changes in working capital and provisions
49,136	32,519
Decrease/(increase) in receivables		3,608	(44,583)
Increase in payables		9,395	27,700
Decrease in provisions		(4,876)	(277)
Cash generated from operations		57,263	15,359
Finance income		64	64
Income tax paid		(10,841)	(9,439)
Net cash generated from operating activities		46,486	5,984
Cash generated from operating activities before exceptional items		49,475	10,768
Cash outflow from previously recognised exceptional items		(2,989)	(4,784)
Net cash generated from operating activities		46,486	5,984
Cash flows from investing activities
Purchase of property, plant and equipment		(3,563)	(2,720)
Purchase of intangible assets		(5,060)	(3,192)
Proceeds from disposal of subsidiaries	4	2,002	401
Net cash used in from investing activities		(6,621)	(5,511)
Cash flows from financing activities
Finance cost		(751)	(547)
Employee subscription for tracker shares		156	275
Settlement of unvested tracker shares		-	(10)
Proceeds from exercise of share options		598	600
Purchase of own shares		(1,111)	-
(Repayment of)/proceeds from borrowings	10	(24,000)	19,000
Dividends paid to equity holders	7	(17,671)	(17,177)
Distributions to tracker shareholders		(131)	(126)
Net cash (used in)/generated from financing activities		(42,910)	2,015
Net (decrease)/increase in cash and cash equivalents		(3,045)	2,488
Cash and cash equivalents at beginning of the year		14,071	13,690
Effect of exchange rate changes		(4,867)	(2,107)
Cash and cash equivalents at end of the year	9	6,159	14,071

SThree plc

Notes to the financial statements

For the year ended 30 November 2015

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 2015 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 2016.

The auditors have reported on the Group's financial statements for the years ended 30 November 2015 and 30 November 2014 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 2014 have been filed with the Registrar of Companies and those for the year ended 30 November 2015 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 ('IFRIC') 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.

Certain reclassifications, disaggregations and regroupings have been made to prior year amounts to conform to the current year presentation.

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 the Group 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 and the Regional CEOs, 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: United Kingdom & Ireland, Continental Europe, Americas and Asia Pacific & Middle East.

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
		2015	2014	2015	2014
		£'000	£'000	£'000	£'000
United Kingdom & Ireland		296,796	280,125	69,490	66,338
Continental Europe		346,404	312,216	103,237	99,356
Americas		157,719	111,110	45,465	33,403
Asia Pacific & Middle East		47,922	43,473	17,526	19,126
		848,841	746,924	235,718	218,223

Continental Europe primarily includes Belgium, France, Germany, Luxembourg, Netherlands and Switzerland.

Americas includes the USA, Brazil and Canada.

Asia Pacific & Middle East mainly includes Australia, Dubai, Hong Kong, Japan, Qatar, Russia 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
			2015	2014	2015	2014
			£'000	£'000	£'000	£'000
UK			276,160	255,780	63,085	58,882
USA			157,568	109,449	45,409	32,442
Germany			152,363	141,488	52,210	49,471
Netherlands			102,704	85,271	24,390	22,268
Other			160,046	154,936	50,624	55,160
			848,841	746,924	235,718	218,223
					NON-CURRENT ASSETS
					30 November	30 November
					2015	2014
					£'000	£'000
UK					13,080	12,531
USA					2,175	1,166
Germany					509	425
Netherlands					134	155
Other					809	1,022
					16,707	15,299

The following segmental analysis by brand, recruitment classification and discipline (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
			2015	2014	2015	2014
			£'000	£'000	£'000	£'000
Brand
Progressive			259,239	249,714	63,319	67,727
Computer Futures			216,590	182,053	62,944	54,607
Real Staffing Group			200,427	158,811	61,047	49,932
Huxley Associates			172,585	156,346	48,408	45,957
			848,841	746,924	235,718	218,223
Recruitment classification
Contract			763,937	661,195	150,814	132,494
Permanent			84,904	85,729	84,904	85,729
			848,841	746,924	235,718	218,223
Discipline
Information and communication technology			365,129	314,540	97,321	86,099
Energy			124,946	122,722	26,257	32,278
Others			358,766	309,662	112,140	99,846
			848,841	746,924	235,718	218,223

Others include Banking & Finance, Engineering and Life Sciences.

3.     Administrative expenses - Exceptional items

Exceptional items are those items that are required to be separately disclosed by virtue of their size or nature to help provide an understanding of the Group's underlying results.

In the prior year, the Group undertook a review of its operations, to identify opportunities to refocus resources and effort away from sub-scale businesses that had little prospect of moving into profit in the foreseeable future towards those operations which were expected to deliver the greatest return over the medium term. This resulted in closure and amalgamation of certain offices, redundancies and redeployment of staff and the impairment of assets. The total cost of this restructuring was considered exceptional by virtue of its size and nature and was charged to the income statement in 2014.

Items classified as exceptional were as follows:                               

					30 November	30 November
					2015	2014
					£'000	£'000
Exceptional items - charged to operating profit
Restructuring-related personnel costs					-	2,034
Office closures					-	2,158
Asset impairments and related onerous maintenance contract					-	1,145
Other					-	170
Exceptional items - before taxation					-	5,507

4.     Gain on disposal of subsidiaries - Exceptional items

During the year, the Group recognised an additional gain of £0.4m in relation to the disposal of IT Job Board in July 2013. This represents 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 has been classified as an exceptional item consistent with the previous presentation.

5.     Operating profit          

Operating profit is stated after charging/(crediting):

					30 November	30 November
					2015	2014
					£'000	£'000
Depreciation					1,910	2,049
Amortisation					3,181	3,161
Accelerated amortisation and impairment of intangible assets					1,471	-
Foreign exchange gains					(381)	(383)
Staff costs					149,389	141,273
Movement in bad debt provision and debts directly written off					552	965
Loss on disposal of property, plant and equipment					38	34
Exceptional restructuring costs (note 3)					-	5,507
Gain on disposal of subsidiaries (note 4)					(377)	(205)
Operating lease charges
	- Motor vehicles				1,212	1,241
	- Land and buildings				9,419	9,518

6.     Taxation

(a)  Analysis of tax charge for the year    

		30 November 2015			30 November 2014
		Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Current taxation
UK
Corporation tax charged/(credited) on profits for the year		4,672	77	4,749	4,048	(293)	3,755
Adjustments in respect of prior periods		(63)	-	(63)	(919)	-	(919)
Overseas
Corporation tax charged/(credited) on profits for the year		5,454	-	5,454	5,810	(706)	5,104
Adjustments in respect of prior periods		(252)	-	(252)	73	-	73
Total current tax charge/(credit)		9,811	77	9,888	9,012	(999)	8,013
Deferred taxation
Origination and reversal of temporary differences		1,556	-	1,556	(492)	(28)	(520)
Adjustments in respect of prior periods		(17)	-	(17)	573	-	573
Total deferred tax charge/(credit)		1,539	-	1,539	81	(28)	53
Total income tax charge/(credit) in the income statement
11,350	77	11,427	9,093	(1,027)	8,066

(b) Reconciliation of the effective tax rate              

The Group's tax charge for the year exceeds (2014: exceeds) the UK statutory rate and can be reconciled as follows:

		30 November 2015			30 November 2014
		Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Profit before taxation		37,715	377	38,092	29,287	(5,302)	23,985
Profit before taxation multiplied by the standard rate of corporation tax in the UK at 20.33% (2014: 21.67%)
7,667	77	7,744	6,347	(1,149)	5,198
Effects of:
Disallowable items		937	-	937	394	32	426
Differing tax rates on overseas earnings		1,454	-	1,454	1,379	(296)	1,083
Adjustments in respect of prior periods		(332)	-	(332)	(273)	-	(273)
Adjustment due to UK tax rate changes		120	-	120	51	-	51
Tax losses for which no deferred tax was recognised*		1,504	-	1,504	1,195	386	1,581
Tax expense/(credit) for the year		11,350	77	11,427	9,093	(1,027)	8,066
Effective tax rate		30.1%	20.4%	30.0%	31.0%	19.4%	33.6%

* 2015 figure includes £1.1m in respect of prior years.

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

			30 November	30 November
			2015	2014
			£'000	£'000
Equity-settled share-based payments
Current tax			(53)	(61)
Deferred tax			70	15
			17	(46)

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 2015 a deferred tax asset of £0.9m (2014: £0.8m) has been recognised in respect of these options.

7.     Dividends

				30 November	30 November
				2015	2014
				£'000	£'000
Amounts recognised as distributions to equity holders in the year
Interim dividend of 4.7p (2014: 4.7p) per share (i)				5,903	5,728
Final dividend of 9.3p (2014: 9.3p) per share (ii)				11,768	11,449
				17,671	17,177
Amounts proposed as distributions to equity holders
Interim dividend  of 4.7p (2014: 4.7p) per share (iii)				6,049	5,903
Final dividend of 9.3p (2014: 9.3p) per share (iv)				12,009	11,712

(i) 2014 interim dividend of 4.7 pence (2014: 4.7 pence) per share was paid on 5 December 2014.

(ii) 2014 final dividend of 9.3 pence (2014: 9.3 pence) per share was paid on 5 June 2015.

(iii) 2015 interim dividend of 4.7 pence (2014: 4.7 pence) per share was paid on 11 December 2015 to shareholders on record at 6 November 2015.

(iv) The Board propose a 2015 final dividend of 9.3 pence (2014: 9.3 pence) per share, to be paid on 3 June 2016 to shareholders on record at 29 April 2016. This proposed final dividend is subject to approval by shareholders at the Company's next Annual General Meeting on 21 April 2016, and therefore, has not been included as a liability in the Group financial statements.

8.     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
					2015	2014
					£'000	£'000
Earnings
Profit after taxation before exceptional items					26,365	20,194
Exceptional items net of tax					300	(4,275)
Profit for the year attributable to owners of the Company					26,665	15,919
					million	million
Number of shares
Weighted average number of shares used for basic EPS					127.0	123.7
Dilutive effect of share plans					5.6	10.3
Diluted weighted average number of shares used for diluted EPS					132.6	134.0
					30 November	30 November
					2015	2014
					pence	pence
Basic
Basic EPS after exceptional items					21.0	12.9
Impact of exceptional items					(0.2)	3.4
Basic EPS before exceptional items					20.8	16.3
Diluted
Diluted EPS after exceptional items					20.1	11.9
Impact of exceptional items					(0.2)	3.2
Diluted EPS before exceptional items					19.9	15.1

9.     Cash and cash equivalents

					30 November	30 November
					2015	2014
					£'000	£'000
Cash in hand and at bank					6,159	14,071

10.   Borrowings

			30 November	30 November
			2015	2014
			£'000	£'000
Revolving credit facility ('RCF')			-	24,000

The Group has a committed RCF of £50m in place with RBS and HSBC which expires in May 2019. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (2014: 1.3%) above 3 month Sterling LIBOR. The average interest rate paid on the RCF during the year was 1.8% (2014: 1.8%).

At the year end the Group and the Company had drawn down £nil (2014: £24.0m) on this facility.

The facility 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.

11.   Annual Report and Annual General Meeting

The 2015 Annual Report and Notice of 2015 Annual General Meeting will be posted to shareholders shortly. Copies will be available on the Company's website www.sthree.com or from the Company Secretary, 1st Floor, 75 King William Street, London, EC4N 7BE. The Annual General Meeting of SThree plc is to be held on 21 April 2016.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR EALFAALPKEFF

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