Overview Strategic Report Governance Financial Statements Shareholder Information
STEM Staffing Specialists
ANNUAL REPORT 2017
SThree plc Annual Report 2017 1 Overview Strategic Report Governance Financial Statements Shareholder Information
Table of Contents SThree plc is a leading international
Overview staffing company. We provide specialist 2 SThree at a glance Contract and Permanent recruitment 3 Overview of SThree 4 Global locations services in the STEM (Science, Technology, Engineering and Mathematics) sector. Strategic Report 6 Our Business Model 9 Business Model & Strategic Priorities 13 Investment Case Contract Runners Total headcount 15 Chief Executive Officer’s Review 26 Continental Europe 27 UK & Ireland 10,197 2,866 28 USA (+12%) 2016: 9,078 (+11%) 2016: 2,590 29 Asia Pacific & Middle East 30 Five Year Financial Review Global reach Total sales headcount 31 Chief Financial Officer’s Review 38 Key Performance Indicators 43 Risk Management Strategy 52 Corporate and Social 16 40 2,257 Responsibility Report Countries Offices (+10%) 2016: 2,044
Governance Report
57 Chairman’s Governance Revenue Adjusted Profit Before Tax Overview 59 Board of Directors & Secretary * * £1,115m (+9%*) £44.5m (+9%**) 61 Directors’ Report 67 Directors’ Remuneration Report Gross Profit (‘GP’) Statutory Basic Earnings Per Share 90 Corporate Governance Report 99 Audit Committee Report 106 Nomination Committee Report £287.7m (+4%*) 21.5p (+1%) 107 Independent Auditors’ Report Statutory Profit Before Tax Adjusted Basic Earnings Per Share
Financial Statements * * £37.7m (+1%) 25.7p (+11%**) 117 Financial Statements 162 Five Year Financial Summary Financial Year: Shareholder Information 1 December 2016 - 30 November 2017 164 Financial Calendar 164 Shareholder Information * In constant currency (a variance in constant currency is calculated by applying the prior financial year foreign exchange rates to current financial year results to remove the 166 Company Information impact of exchange rate fluctuations) & Corporate Advisors ** Excludes the impact of £6.7m exceptional strategic restructuring costs (2016: £3.5m), see page 32.
SThree plc Annual Report 2017 SThree plc Annual Report 2017 2 Overview Strategic Report Governance Financial Statements Shareholder Information
Overview of SThree
We operate a family of ten brands, each with expertise and focus on niche areas. We believe this gives us deep understanding of industry sectors and allows us to provide a better service to our clients and candidates.
Science Technology Engineering Mathematics
Our strong emphasis on creating We do this through our key a diverse and inclusive working Principles which guide the way environment allows us to find and we work. Our Principles are based retain skilled people and to bring on research with our clients and a breadth of thinking to solve candidates to identify what they workplace challenges for most value in a recruitment partner: our customers. • ‘Build trust.’ Our Purpose is to bring skilled • ‘Care then act.’ people together to build the future. • ‘Be clear then aim high.’ This is why we exist as a company.
Our Vision is to be the number one STEM talent provider in the best STEM markets. This is the goal we are working towards.
SThree plc Annual Report 2017 SThree plc Annual Report 2017 3 Overview Strategic Report Governance Financial Statements Shareholder Information
Overview of SThree
SThree consists of a family of ten niche recruitment brands focusing on STEM industries (Science, Technology, Engineering, and Mathematics).
We believe that a multi-brand candidates – are served through model provides us with the systems which are common across potential to achieve greater all of our brands and sectors. market coverage in any given Our candidates and clients engage sector or geography than we with SThree primarily through our might be able to achieve through four largest recruitment brands: only operating with a single brand. Computer Futures, Progressive, To date all of our brands are Huxley and Real. home-grown, created within Within the STEM industries we provide SThree’s entrepreneurial culture Permanent and Contract staff in response to clear market to sectors including Information opportunities. This means that all our and Communication Technology brands benefit from a single unified (‘ICT’), Banking & Finance, Life global database of clients and Sciences, Engineering and Energy. candidates. Customers – both client companies and individual
Our locations and Gross Profit* per region for 2017
Continental USA UK & Ireland Europe APAC & ME 22% 19% 52% 7% (+2% pts) (-6% pts) (+3% pts) (+1% pts)
USA Continental Europe Austin Minneapolis Belgium Netherlands Boston New York France Norway Chicago San Diego Germany Spain Houston San Francisco Luxembourg Switzerland
UK & Ireland Asia Pacific and Middle East Aberdeen Glasgow Australia Singapore Birmingham London Hong Kong UAE Bristol Leeds Japan Dublin Manchester
* Gross Profit represents revenue less costs of sales, and consists of the total placement fees of Permanent candidates and the margin earned on the placement of contractors.
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Strategic Report
6 Our Business Model
9 Business Model and Strategic Priorities
10 Our Strategic Priorities
13 Investment Case
15 Chief Executive Officer’s Review
26 Continental Europe
27 UK & Ireland
28 USA
29 Asia Pacific & Middle East
30 Five Year Financial Review
31 Chief Financial Officer’s Review
38 Key Performance Indicators
43 Risk Management Strategy
52 Corporate and Social Responsibility Report
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Our Business Model
1. The global recruitment marketplace
Temporary and full-time roles filled via agency intermediaries, including SThree, are a significant subset of the global recruitment market. Staffing agency fees across all regions, sectors and role types are estimated at several hundreds of billions of pounds annually. The percentage of roles filled through agencies varies very significantly between countries, with a positive correlation with Gross Domestic Product, underpinned by a supportive legal framework.
SThree deploys its brands in countries with higher levels of recruitment agency fees.
The specialist recruitment market is primarily driven by confidence amongst candidates to move jobs and by businesses to replace them or create new roles as they grow and invest. Additionally there are long-term structural shifts in favour of Contract roles rather than Permanent roles. This is being driven by a mix of supply and demand factors.
2. The intermediary model
SThree employs skilled recruitment consultants who engage both clients and candidates in order to match skilled professionals with niche roles across the STEM sector.
We earn fees from our client companies when we place a candidate with them. These fees are charged as a percentage of a candidate’s salary. Candidates do not pay fees in order to be placed.
With Contract we invoice clients on an ongoing basis for the duration of the contract, usually on a monthly basis. We pay contractors an agreed rate and retain a portion of the amount charged to clients as a service fee. Our traditional contractor service model is the Personal Service Company model (‘PSC’). This is a model under which a freelance consultant works independently on the basis of a contract between SThree, a client and a PSC. An increasing share of our Contract business is moving towards an alternative contractor service model, the Employed Contractor Model (‘ECM’). ECM was first introduced in 2013. It is structured such that the Group employs individuals directly and contracts them to clients. ECM is the preferred contracting model in a number of countries, including the USA. Our business model is expected to shift further towards ECM with time.
With Permanent or full-time roles the fees are usually charged when a candidate begins work with a client.
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Our Business Model
2. The intermediary model (continued)
In less competitive markets or for These two payment models for On the other side of the financial particularly hard to find roles, part of Contract and Permanent create equation, Permanent generates the fees may be payable at the start different financial considerations. cash quicker as there is no associated of a search assignment and before A Contract placement generates employment cost. There are also a candidate begins work, which is greater lifetime value, on average, good strategic reasons to include known as a retained assignment. than a Permanent role. Average a Permanent offering as part of Occasionally, payments may be contract length for SThree is 16 our overall services. Not only does it spaced out over a number of weeks. This generates over 40% respond to client needs but it allows months once a candidate has greater lifetime Gross Profit than us to place candidates who may in begun work. an equivalent Permanent role. time become hiring managers.
3. Making the model work
In order to make our business model from other sectors who want to join sectors with a high need for STEM a success, we focus on creating a a large and successful company. skills, we focus on sectors with a virtuous circle between its three core relatively high demand for Contract More fundamentally our strong components of People, Customers roles. The very best markets have an sense of purpose – that we bring and Service. This underlying business additional Permanent opportunity to skilled people together to build the model remains unchanged from complement the Contract offering. future – makes this a very appealing previous years, although we We also focus on markets where place to build a career. continue to focus on developing there is an opportunity for us to scale strategic plans to optimise it. Our efforts in this area allow us to our presence. One of the strengths of provide strategic advice to our clients SThree is our ability to deploy large about how they can win the war for offices in multiple cities within a region, Our People are our greatest talent in their own spheres. running on common technical and asset. We know that a customer’s support systems. In all of our key interaction with an individual regions we are present in several recruiter drives over 60% of Our Services primarily involve key cities. their total satisfaction with placing people in either Contract any placement. or Permanent roles and supporting One of the reasons our clients client companies and candidates choose us is because we understand That’s why we provide our people before, during and after that process. the regulations that apply in any of with the support and systems they This covers a range of services the jurisdictions where our candidates need to grow their career. We are from filling positions through to may work. We can ensure full committed to creating an inclusive payroll services and ensuring compliance for all parties and this environment which allows them to full regulatory compliance. valuable market knowledge is a progress, irrespective of their source of sustainable competitive background; and we put learning Our mix of contract and permanent advantage for SThree, particularly and development programmes in business means that we are well given the long-term trend in favour place designed to support their placed to support clients and of contract working. careers at all stages. To back this candidates at any point in the up, our senior team have specific economic cycle. Our team of As working patterns change, objectives to ensure we are building consultants specialise in either particularly driven by a structural and retaining a diverse motivated Contract or Permanent recruitment, shift in favour of contract work, workforce. in addition to covering a defined we see additional new services market sector and geography. emerging particularly to ensure that We have a strong value proposition This allows us to offer a high level of contract workers have some of the to prospective employees, captured service to customers across a wide same protection and obligations through two core ideas: ‘A career range of profiles and industries. as full-time workers. This has driven with purpose’ and ‘A career with the emergence of new workplace no limits.’ This allows us to attract We carefully select the best STEM services in many of our key markets professionals who wish to build a markets in which to deploy these where our role has evolved from career in recruitment or experts services. In addition to regions or
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Our Business Model
3. Making the model work (continued) purely finding workers on behalf of companies towards taking on additional employment responsibilities towards contractors on behalf of clients. This creates additional regulatory complexity but also creates a market dynamic which favours larger staffing companies who are able to manage and support this more complicated environment.
We have three different sets of Customers. The client organisations we work with span almost every size and shape of company in need of skilled technical specialists, from small enterprises through to some of the largest and most respected global companies. We are able to provide them with the talent they need through detailed market sector knowledge and the ability to reach a vast network of candidates through our own bespoke tools and by using market-leading sourcing techniques.
We deal with candidates seeking for new opportunities, under Permanent or Contract roles. We match them to one of the tens of thousands of companies we work with on an ongoing or ad hoc basis.
We match our impressive scale with a strong emphasis on customer experience, to ensure that Clients, Contractors and Permanent candidates receive the high level of service that will motivate them to deal with us in future and to recommend us to other future customers. This emphasis on customer experience has a growing importance in our performance management practices and incentives.
These three elements of our business model are highly inter-dependent, with efforts in each area also strengthening the other elements.
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in 2017 eNPS score up from 26.8 up from 36.8 by 2019 36.8 by Implement regular pulse surveys on satisfaction employee using Employee ScoreNet Promoter (‘eNPS’) Loss of key talent Loss of key of transition before supportthe central function to a new location is complete 4. 3.
from 26% in FY17 from 10% in FY17 from
People
Level 3 32% Level 4 20% Level 2017: 45% Female representation in sales roles by FY18 by in sales roles representation Female Find, retain and develop great people great and develop retain Find, 41% - 43% by 2018 41% - 43% by Build a talent pipeline of female managers retention staff Improve Educate people on the end-to-end customer service experience turnover, High staff talent loss of key female Low representation exposing us to riskreputational and of diverse thinking lack Sales HC churn of 12 - 24 months’ sales cohort 24 months’ 1. 2. 3. 1. 2. 6.
Build infrastructure leveraged for growth
5. 2017: £44.9m* Operating Profit Operating £60m - £100m by 2022 £60m - £100m by impacting the Group’s operations impacting the Group’s and exposing it to the financial riskand reputational transition to effectively Failure support function the central Invest in technologies and Invest services that extend SThree’s offering core delivery of the relocation Effective support functionsof our central London to Glasgow from
4. 4. 5.
Services Generate incremental revenues through and M&A innovation
4. new product lines by 2020 product lines by new Investment in Innovation / new products / new in Innovation Investment
challenging Revenue generation of £11m - £17m from Revenue
2017: 15.6%* 18% - 23% by 2022 18% - 23% by Focus on drive Contract, Permanent profitability Group OP Conversion Ratio OP Conversion Group Implement a new Contractor Implement a new (‘Workflow’) Timesheet Portal Continue to prioritise Contract Structure the Permanent Contract from business separately sophisticated geographies in more profitability to improve disruptive from Threat technologies the viability of the Group’s business model current from cost pressures Increased environment competitive more loss of A serious system failure, data or security breach 1. 2. 3. 1. 2. 3. 3.
2017: 25.7p* 40.4p by 2022 40.4p by Earnings per share
Develop and sustain Develop customergreat relationships Target growing sectors in growing Target geographies attractive USA) (Continental Europe, in foreign movements Adverse the reducing exchange rates profitability Group’s transition to effectively Failure support function the central 2. 3. 3. 4.
Customers 46 to 48 by 2019 46 to 48 by up from 44 in FY17 up from
Client and Candidate Net Promoter Score Client and Candidate Net Promoter Gross Profit Gross 2017: £287.7m Grow and extend regions, and extend regions, Grow sectors and services £330m - £435m by 2022 £330m - £435m by Improve end-to-end Improve customer experience the most effective Develop design for organisational MSP and Contingency, Account CustomersKey A change in the macro- economic conditions adversely impacting the performance Group’s to or take to react Failure of changes advantage in the environment competitive in a timely manner To be the number one STEM talent provider in the best STEM markets be the number one STEM talent provider To 1. 2. 1. 2.
1.
Initiatives Targets Risks vision Model priorities
Our Business Business Strategic * Excludes the impact of £6.7m restructuring costs (2016: £3.5m) Our Business Model and Strategic PrioritiesOur Business Model and Strategic
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Our Strategic Priorities
1. Grow and extend regions, 2. Develop and sustain great sectors and services customer relationships
Description Description We are in most of the world’s biggest recruitment Customer satisfaction drives future revenue markets and primarily focus on growing our growth and increases employee engagement. presence in these countries. Where additional opportunities exist we will carefully expand into What happened in the year new countries. We continued to use Net Promoter Score (‘NPS’) to measure satisfaction among clients and candidates What happened in the year where we have completed a transaction. We consolidated our strong presence in We extended our NPS to also capture feedback markets where we have a significant upside at interview stage. opportunity, particularly the USA and Germany, laying the foundations for future growth We re-prioritised capital projects based on customer insight. For example, in the design of our new We continued to grow our presence in the Contractor Timesheet portal (‘Workflow’). Netherlands, particularly in ICT Contract. Development of the most effective organisational We entered new countries: Austria and Spain. design for Contingency, MSP and Key Account We expanded our presence in France by Customers in progress. Blueprint and toolkit opening new flexible business development created for delivery models and job roles, offices in Toulouse and Lyon. with accompanying tailored reward schemes. We focused on ICT, Life Sciences, Energy and Rolled out across each geography. Engineering, adopting a slightly more cautious approach in the UK due to Brexit. Our plans for 2018 We reviewed our presence in smaller markets and We expect to continue to use a broad measure decided to restructure our Hong Kong business. of NPS to drive improvements in our processes and behaviours.
Our plans for 2018 We will roll out Workflow. We expect to continue to focus on geographies We will continue to educate our people on that meet our criteria for investment, in particular the importance and value of positive customer the USA, Germany and the Netherlands. relationships. On sectors we will continue to maximise opportunities in ICT, Life Sciences and Engineering/Energy. Link to remuneration (see page 67) We will expand our Employed Contractor Model (i) Improvement in Candidate NPS and to create new opportunities for our Contract (ii) Developing the Most Effective Organisational business in Continental Europe. Design for Contingency, MSP and Key Account We will selectively trial additional services, Customers are two out of four Shared Strategic including Statement of Work. Objectives for the calculation of annual bonus for Executive Directors in FY 2017.
Link to remuneration (see page 67) Links to KPIs Adjusted Profit Before Tax, Operating Profit Conversion Ratio are financial metrics/measures 9A 13 for the annual bonus for Executive Directors. Earnings per share and relative Gross Profit growth, are financial metrics/measures for the LTIP for Executive Directors.
Links to KPIs 1 2 4 5 6 7 11
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Our Strategic Priorities
3. Focus on Contract, drive 4. Generate incremental revenues Permanent profitability through Innovation and M&A
Description Description Contract is generally more profitable and more We aspire to build a more diverse portfolio of resilient than Permanent. Our focus is to grow products and services so that we capture a Contract. greater share of total customer spend on employment matters and to ensure we Investment in Permanent is highly selective are not affected by potential disruption. as we continue to focus on improving the profitability of this division. What happened in the year We launched Talent Deck in the UK, a new smart What happened in the year job board initially aimed at IT talent and clients. We continued to grow Contract headcount faster than Permanent headcount, in line with our plan. We invested in The Sandpit, an incubator for HR start-ups. In markets with significant Permanent opportunity such as the USA and Germany we continued to We signed a development agreement with maintain a strong Permanent offering. RoboRecruiter and made an investment in the business. We actively reduced Permanent headcount in markets with smaller potential for us to improve We supported the deployment of Right Staff by overall profitability of our Permanent business. Ryalto Limited with a successful trial among shift workers in the UK’s National Health Service. We created separate management structures for our Contract and Permanent businesses in almost We prepared the ground for two other internally- all territories to drive accountability and focus. developed initiatives to launch in 2018.
We developed initial thinking for a Statement Our plans for 2018 of Work service. We expect to continue this strategy in 2018. We continued to evaluate potential acquisition targets that would enhance our technology Link to remuneration (see page 67) (i) Developing Permanent Strategy and and add to revenues. (ii) Developing the Most Effective Organisational Our plans for 2018 Design for Contingency, MSP and Key Account We expect to continue the rollout of Talent Deck Customers are two out of four Shared Strategic and to win additional marquee clients. Objectives for the calculation of annual bonus for Executive Directors. We plan to launch two additional ventures A focus on Contract also supports the profitability which have been incubated within SThree. metrics included within the Executive Bonus and We expect to test chat box technology LTIP targets. developed by RoboRecruiter.
We will selectively trial additional services, Links to KPIs including Statement of Work.
3 4 5 6 7 8 We will continue to look at potential additional investments where we see a good strategic fit. 10 11 Link to remuneration (see page 67) Revenue generation from new product lines is included as a strategic objective in the FY17 and FY18 LTIP schemes.
Links to KPIs Strategic elements of LTIP 2017 and 2018.
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Our Strategic Priorities
5. Build infrastructure for 6. Find, retain and develop leveraged growth great people
Description Description Our intent is to have a scalable structure which will Our primary growth engine is our people. We aim allow us to grow operating profit faster than gross to find great people and enable them to build profit by focusing on consultant productivity and meaningful careers inside the organisation. by having systems and IT infrastructure which support this ambition in a cost-effective way. What happened in the year We plan to situate offices in the right location to We began to use Employee Net Promoter Score serve customers with additional offices in lower- (‘eNPS’) to measure satisfaction among employees. cost locations where possible. We developed a new organisational framework to serve different customer groups in a disciplined way. What happened in the year We initiated a Female Leadership programme We continued to move towards cloud services to create the next generation of leaders. for our key systems so that we have a predictable model with reduced long-term costs compared We rolled out a major new behavioural programme to ‘on premise’ solutions. focused on our new Operating Principles to build a greater sense of purpose inside the company. We agreed to invest in new Marketing Automation technology for websites and customer Our plans for 2018 communication. We expect to continue to measure eNPS each We announced the strategic restructuring of our UK quarter and to use this to tell us the subjects that central support functions from London to Glasgow. matter most to our employees.
We expect to complete the rollout of the new Our plans for 2018 framework and customer delivery model. We expect to continue to open new offices in our focus markets, e.g. Washington in the USA. We will continue to develop our future female leaders. We will deploy our Marketing technology so that we can improve outbound communication. We will embed our Operating Principles so that people can understand how to act in a way We aim to maximise office occupation rates. that creates a great customer experience. We expect to complete the relocation of our UK We will build a support function in the UK, Central Support roles to Glasgow while minimising on-boarding people into a new way of impact on customer service. working and setting us up for future success.
Link to remuneration (see page 67) Link to remuneration (see page 67) There is an Executive Director objective for the annual bonus scheme to deliver financial benefits Customer and people engagement score is one of associated with the new support function in the Shared Strategic Objectives for the calculation Glasgow, establishing it, whilst minimising of annual bonus for Executive Directors. disruption to BAU activity. Churn and diversity targets are also included Adjusted Profit Before Tax and Operating Profit in the FY17 LTIP scheme. Conversion Ratio are financial metrics/measures used for calculation of annual bonus for Links to KPIs Executive Directors. 1 3 9A 9B 9C Earnings per share and relative Gross Profit growth, are financial metrics/measures for the LTIP for Executive Directors.
Links to KPIs 3 4 5 6 7 12
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Investment Case
Our business model is well diversified across geographies and sectors, while focusing on markets that meet certain criteria to drive profitable growth. We cover the different and complementary revenue streams of both Contract and Permanent recruitment.
We are a pure STEM recruiter provides sustainable competitive incentives to drive sustained with multiple brands to maximise advantage. performance. opportunities, including allowing We have a diverse and engaged Our balanced business model our brands to compete where this workforce. provides us with a good degree of creates greater shareholder value. resilience across a range of sectors, Our strength in Contract provides We participate in markets where geographies and employment mixes. more predictable future earnings. demand for talent exceeds supply, Existing footprint and investments giving us structural long-term The Contract market has higher give us significant operating leverage growth opportunities. barriers to entry because of cash to double profit before tax over a requirements and regulatory Our leading-edge systems and five-year period. complexity. global infrastructure provide a Our experience over the last 30 scalable platform for future growth. We have a consistent and robust years gives us insight and flexibility dividend track record supported We have a unified single database to rapidly re-deploy our staff across by a strong balance sheet. of customers. sectors and regions in response to Our entrepreneurial culture is changing market dynamics. Our focus on customer experience supported by a range of long-term
GP Business mix
GP business mix by geography
22% 7% 20% 6% 19% 7%
19% 25% 30% 2017 2016 2015
52% 49% 44%
Continental Europe USA APAC & ME UK&I
GP business mix by sector
22% 2% 21% 1% 19% 2%
9% 9% 9% 2017 43% 2016 45% 2015 41%
9% 8% 11%
15% 16% 18%
ICT Banking & Finance Energy Engineering LIfe Sciences Other
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Investment Case
Why STEM?
We specialise in the STEM market, which has the following characteristics: • Ideal for the recruitment sector as • Broad client mix highly skilled candidates are difficult • Higher average salaries and margins to identify • Increasing government and industry • Benefit from future market changes regulations require larger compliant brought about by technology/ organisations automation • The Contract offering is particularly • A job market growing faster well suited to the STEM market than the overall job market
Demand for quality talent in STEM markets remains strong, due to: • Structural shift in favour of Contract • Shortage of specialist skills in increases candidate mobility technical areas • Demographic shifts and an • Expanding client portfolios ageing workforce • Shortage of talent considering • Relatively high churn as candidates careers in STEM move to update skills and projects require different skill mixes
Why Contract?
With our Contract runner level at a record high we continue to believe that this presents us with sustained growth opportunities in 2018 for the following reasons: • Long-term societal preference for • More predictable and visible Contract assignments, particularly earnings stream among skilled individuals • More resilient than Permanent in times • Higher lifetime value than a of economic uncertainty as companies Permanent equivalent defer long-term investments • Higher Consultant productivity on • Ongoing client relationships more Contract compared to Permanent likely to generate other opportunities • STEM markets are often project-based • Contract is a key requirement to deal • Tendency for Contract rates to rise with Managed Service Providers in positive economic climate when (‘MSPs’) who cover roughly 30% talent is in short supply of global recruitment spend • Greater barriers to entry due to cash • Additional future growth opportunities requirements and growing compliance by expanding into Employed and regulatory requirements Contractor Model in addition to standard Contractor model
Contract runners up by 99% since 2012
5,745 4,157 4,359 4,692 5,122 5,791 7,573 8,412 9,078 10,197
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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Chief Executive Officer’s Review We have delivered an encouraging overall result for the year, with a strong finish in the final quarter. Pleasing performances in the USA and Continental Europe, particularly from our market-leading businesses in the Netherlands and Germany, were key to this result.
Gary Elden SThree Chief Executive Officer
With 81% of our business now will help us to work in a more Growing Contract, generated outside the UK and 71% effective and agile way in the future. driving Permanent profitability of our GP generated by our more With the creation of the new senior resilient Contract business, our business management roles of Chief Sales We invested for future growth, with profile has changed significantly Officer and Chief Operations Officer, year end sales headcount up 10% over recent years. After two years we will be in a better position to align year on year and up 7% sequentially of turbulent political, market and our sales and operational strategies vs Q3 2017. We continued to grow economic pressure, we enter 2018 and ensure we have the right services, Contract headcount (+15%) faster in good shape, with a clear vision infrastructure and people to execute than Permanent headcount (+3%), to be the number one STEM talent our global growth strategy and in line with our plan. The shift in favour provider in the best STEM markets. provide our customers with the of Contract is creating a business best possible experience. that is much more resilient in times This year we also made some changes of uncertainty, providing stronger to SThree’s leadership model which and more sustainable profits. While in 2012 our business was evenly split between Contract and Permanent, we now have 65% of our sales headcount working on Contract recruitment. We have also created separate management structures or our Contract and Permanent business in almost all territories to drive accountability and focus.
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Chief Executive Officer’s Review
Growing Contract, driving Permanent profitability (continued)
Growing Contract that the Group employs individuals The USA posted a 12%* GP increase, As I have been able to report every directly and contracts them to clients. driven by supportive Energy and year since taking over as CEO, we ECM is the established contracting Banking markets. This was offset by enter our next financial year with model in a number of countries, declines in all other regions, with a record Contract book, passing a including the USA. With governments Continental Europe down 7%* key milestone of 10,000 Contract across the world examining new ways and UK&I down 22%*. runners to reach 10,197 at the end to raise tax revenues to address Permanent recruitment is more of the year, up 12% from last year. budget deficits, our business model sensitive to overall market sentiment Contract GP returned to double is expected to shift further towards and has been hit harder by the digit year over year (‘YoY’) growth ECM over time. A key focus for 2018 political, market and economic of 10%*, with a strong final quarter is the expansion and strengthening uncertainty of recent years. up 14%*. Contract growth YoY was of supporting processes of ECM In response, we have actively across all sectors and driven by within our Contract business to reduced Permanent headcount in Continental Europe, which was up increase its market opportunity. certain markets in order to improve 17%* and by USA, up 21%*. Continental overall profitability in our Permanent Europe and USA combined now Driving Permanent Profitability business. Over the years, this has represent nearly 70% of our Contract Investment in Permanent continued meant restructuring our UK, Benelux runners, up from 65% in 2016. to be made on a highly selective & France, USA, APAC and Middle East basis in the year as we focused on Our traditional Personal Service (APAC & ME), Oil & Gas and Banking improving the profitability of this Company/freelance model (‘PSC’) & Finance businesses. In markets with division. Permanent GP was down 8%* continues to perform well and we are significant Permanent opportunity YoY, with average sales headcount also generating increased business such as the USA and Germany we down 10%, reflecting a 3%* through our Employed Contractor continue to maintain a strong improvement in Permanent Model (‘ECM’). ECM is structured such Permanent offering. productivity per head over last year.
Improving customer experience
Last year we rolled-out a major systems, processes and behaviours that place the customer at the heart customer experience programme and we have already seen significant of everything we do – to build trust, globally, using Net Promoter Score improvements in our overall NPS to care and then act, to be clear (‘NPS’) to capture our clients and results (+3.6% points) as well as in and then to aim high. We rolled these candidates feedback at every stage the volume of data we capture. principles out across the business of the customer journey. Feedback in the last quarter of 2017 and will From these findings, we have has then been used to adapt our continue to reinforce them in 2018. developed operating principles
Investing in new systems, processes and infrastructure
Our processes, systems and of our London-based support functions have invested in new automation infrastructure are crucial to the to a new office in Glasgow, which will technology which gives us new and delivery of our sales strategy and provide a more sustainable support distinct ways to build a single customer to providing the best customer structure as we continue to grow our view and to communicate in a more experience. We are currently finalising business. We expect to substantially personalised way. a structure which will provide us with complete the reorganisation and We are also part way through a a more holistic, strategic view of our relocation during 2018, creating a roll-out of a new customer/contractor global operational requirements and centre of excellence with a clear portal and a new contract help us to manage demand and objective to reduce costs, while management system. Both systems resource for optimum delivery. improving operational capability. have been developed in response to We have announced some significant We have continued to transition contractor and customer feedback. changes this year, including the our systems to a cloud-based strategic restructuring and relocation marketing services structure and
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Chief Executive Officer’s Review
Generating new revenue streams
Innovation and entrepreneurship • We prepared the ground for two among shift workers in the UK’s are a key focus for the Group as other internally-developed initiatives National Health Service. This is we aspire to build a more diverse to launch in 2018. Showcaser allows currently being scaled up for portfolio of products and services. a user to create and manage a further roll-out. asynchronous video interviews and We have created an internal system • We signed a development is currently being trialled with one of Innovation which gives us greater agreement and invested in of our brands. Hirestream combines ability to identify promising new ideas RoboRecruiter, a messaging a digital market platform with key and to test them quickly. We have bot specifically designed for human-centred touch points. invested c.£3.2 million in the year in a recruitment which engages A pilot is planned in mid-2018. number of external innovation start-ups with candidates without any human intervention. (£1.2 million) and have created our In addition to unlocking internal own innovation incubator (£2.0 million). ideas, we have also engaged with a • We invested in a HR vertical of We expect to increase the amount number of start-ups in the recruitment The Sandpit Limited (‘HRecTech’), spent on our innovation incubator space, to identify whether we should an incubator with a successful track to c.£3 million in 2018. make strategic investments or find record in marketing technology, Key developments in 2017 included: other ways to unlock the potential in which is now incubating HR technology businesses in the • Talent Deck, a new smart job these ideas. We made additional small UK and USA. board, focused on cultural fit and investments totalling c.£1 million in a number of HR technology start-ups: automated matching was launched We will continue to look at potential in the UK and has already attracted • We supported the deployment of additional investments where we blue-chip technology brands. We Right Staff by Ryalto Limited, a work see a good strategic fit. expect to continue the roll-out of scheduling app for healthcare Talent Deck and to win additional professionals in which we have marquee clients in 2018. invested, with a successful trial
Identifying and developing great talent
SThree’s success depends on for our managers and leaders to As part of our ongoing commitment having highly skilled and motivated bring to life the true meaning of our to creating an inclusive and diverse employees. We aim to find great work with our candidates and clients. workforce, we have introduced a new people and enable them to build Female Leadership Development In 2017, we introduced our quarterly meaningful careers inside the Programme: IdentiFy. Thirty high Employee Net Promoter Score (‘eNPS’), organisation. potential, future female leaders replacing our annual engagement from across the Group have been We provide on-the-job learning survey, as a more dynamic way to selected to participate in a 12-month programmes as well as online and capture regular feedback from our development programme. The classroom-based courses to support people. Over 70% of our employees programme is designed to support our employee’s careers at all stages. responded with feedback about them to recognise and develop Our career management platform their experience of working at SThree, their leadership strengths through is leading edge and helps our as well as how they view the services facilitated learning, stretch employees to develop their we offer our customers. eNPS will help assignments and executive careers within the group. us make the right changes based on sponsorship. Through IdentiFy employee feedback and track what This year saw the launch of our we hope to improve the gender is working. Ultimately, it puts our people revised organisational purpose balance at a senior level. at the centre of decisions that help ‘Bringing skilled people together to to create a brilliant place to work. build the future’ and with it, support
SThree plc Annual Report 2017 17 Overview Strategic Report Governance Financial Statements Shareholder Information
Chief Executive Officer’s Review
Operating Review
Group GP up 4%*, with a strong finish Group FY 2017 FY 2016 to the year with GP up 8%* in Q4. Breakdown of GP % % The growth in GP was driven by Contract/Permanent Split Contract up 10%*, with growth across all sectors and strong regional Contract 71 67 performances in Continental Permanent 29 33 Europe up 17%* and USA up 21%*. 100 100 Permanent GP was down 8%*, with average sales headcount down 10%. Geographical Split UK&I 19 25 Group Continental Europe 52 49 GP Growth YoY* USA 22 20 Cont Perm Total Asia Pacific & Middle East 7 6 +10% -8% +4% 100 100
FY 2017 Mix Sector Split Cont Perm ICT 43 45 71% 29% Banking & Finance 15 16 Energy 9 8
Average Sales Headcount Growth Engineering 9 9 YoY Life Sciences 22 21 Cont Perm Total Other 2 1 +5% -10% -1% 100 100
Regional Overview
Regionally, our GP growth was driven by a strong performance in the USA, up 18%*, and robust growth in Continental Europe up 9%*, led by the Netherlands up 20%* YoY.
The USA overtook the UK&I (19% of global footprint by opening four new IR35 Intermediaries Legislation in the Group GP) to become our second offices in Continental Europe. Howev- UK and the Deregulering Beoordeling largest region (22% of Group GP) er,as we reviewed regional business Arbeidsrelaties (DBA law) in the during the year behind Continental performance, it became clear that Netherlands, there is an increasing Europe (52% of Group GP). Although our return on investment in certain risk to the traditional Personal Service the UK&I remains an important part other regions was sub-optimal and Company contractor model. However, of our business, uncertainty created we took action to restructure our we are in a position to provide service by the EU Referendum and the Hong Kong office. to clients that is highly compliant with relative maturity of the recruitment the new legislation and we have a We have continued to roll out ECM market have led us to focus on growing footprint in the ECM market through the year, introducing new growth opportunities in other which offers a suitable alternative offerings in Germany, and regions and to be cautious with to our candidates and clients. A key improvements in our operating our investment in the UK&I business. focus for 2018 is further growth in ECM model globally. With governments As part of our regional market and the further diversification of our turning to new means to address penetration plans, we expanded our Contract services. their budget deficits, including the
* In constant currency
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Regional Overview
Continental Europe
Performance in 2017 GP Growth YoY* Continental Europe is our largest quarter with Contract GP up 24%*. Cont Perm Total region representing 52% of Group GP. The Netherlands Contract business +17% -7% +9% It is split into two regions: Germany, grew GP by 27%* YoY, France by Austria & Switzerland (DACH) which 16%* YoY and Germany by 12%* YoY. is 28% of Group GP, and Belgium, We ended 2017 with our Contract FY 2017 Mix Netherlands, Luxembourg, France runners up 21%, our GP Day Rates Cont Perm and Spain (Benelux, France & Spain), (‘GPDR’) up 1%* and our sales 71% 29% which is 24% of Group GP. Average headcount up 26% YoY, providing a headcount was up 10% in the year strong pipeline for growth in 2018. and period end headcount was up Average Sales Headcount Permanent declined by 7%*, with Growth YoY 18% as we continued to invest for average sales headcount down 5% future growth in this market. Cont Perm Total in the year. Average salaries were up +21% -5% +10% Overall, we delivered strong growth 1%* and fees were up 2%*. GP yields in GP, up 9%*, supported by strong declined 2%*, however, improvements labour markets, a shortage of STEM were noted in Benelux & France candidates, low unemployment and where our Permanent businesses had rising incomes. SThree is the market been restructured in prior years. Period leader in STEM professional recruitment end headcount was up 5% YoY as we in the Netherlands and once again our invested selectively in opportunities in Dutch business delivered an excellent Germany where SThree is the largest performance, with GP up 20%*. Permanent, professional services recruitment business. Our performance across Continental Europe improved through the year We delivered GP growth across with GP in the final quarter up every sector in Continental Europe, +16%* YoY. with double digit growth in Contract across the board. Contract ICT, our Strong growth was achieved in largest sector, grew 18%* YoY, Life Contract across the region with GP Sciences 12%*, Engineering 19%* up 17%*. Contract in Continental and Banking & Finance 20%*. Europe provides a significant growth opportunity and average headcount We opened new offices in Toulouse, was up 21% YoY. The region had an Lyon, Vienna and Barcelona in the year excellent performance in the final in order to better service our client base.
Expectations for 2018 Continental Europe exited 2017 with is expected to help drive further a strong pipeline for growth in 2018, growth. Our ECM offering in Germany focused and capable management has completed a pilot phase and a highly engaged team with successfully with full roll out the lowest churn in the Group. anticipated in 2018.
In line with our Group strategy, we This year, we will focus on improving will continue to invest in Contract Permanent productivity, with throughout 2018 where we see selective headcount investments, market opportunity. Labour laws especially in Germany. create momentum for demand We expect to open new satellite in the Contract business and our offices in Lille and Eindhoven in 2018. increased offering of ECM services
* In constant currency
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Regional Overview
UK&I
Performance in 2017 GP Growth YoY* The UK&I business, which is 19% of end sales headcount down 9%. Whilst Cont Perm Total Group GP, experienced a challenging Permanent GP yields were down 6%* -11% -22% -14% year in 2017, in an environment YoY, we have been actively working dominated by further uncertainty. to increase our focus on higher salary The ongoing ‘Brexit’ negotiations placements and our average fees FY 2017 Mix and the UK’s snap general election and average salaries were both Cont Perm affected market confidence leading up 4%* YoY. 79% 21% to a decline in both our divisions. ICT, which includes Public Sector Average headcount was down and represents 58% of GP, declined 12% YoY with a decline across both Average Sales Headcount 18%* YoY, with Contract down 17%* Contract and Permanent. Period Growth YoY and Permanent down 22%*. Banking end headcount was down 3% YoY. Cont Perm Total & Finance, our second largest market Contract GP in UK&I was down 11%* in the region, reported a decline -10% -17% -12% YoY. The Contract division is more of 22%* YoY. The Banking & Finance resilient in tough market conditions, but sector, which is 14% of UK&I, remains these were exacerbated by pricing subject to further uncertainty arising pressures and IR35 Intermediaries from the UK’s negotiations with the Regulation in the Public Sector in the EU. However, we saw improvements year. We have successfully navigated in our Engineering GP which grew these new regulations, demonstrating 8%*, with growth achieved in all four our ability to provide a high quality quarters of the year. Performance in and compliant service. Average Engineering was driven by Contract headcount was down 10% YoY, up 12%*, in part as the sector benefited however, period end headcount from increased demand resulting was down 1%. Contract runners from the depreciation of Sterling. Life closed at 2,616, down 2% with our Sciences also showed promise with GPDR down 1%*. However, the growth from Q2 onwards and FY Contract business showed signs of growth of 3%* YoY. improvement with runners and GPDR The UK&I business is focussed on both growing sequentially in H2. maintaining profitability and measures After a significant restructuring of were taken through the year to the Permanent business in 2016, we streamline the business. We rationalised expected GP to be down in the year, the management structure and but it fell further than anticipated as increased the relative number of a result of the continuing political candidate resourcing roles in our uncertainty through the year and Glasgow Resource Centre, which was down 22%* YoY. Average sales benefits from a lower cost base. headcount was down 17% with period
Expectations for 2018 In the UK, we enter 2018 against a We expect to retain a flexible background of continued uncertainty. approach to resource allocation to Increasing inflation and suppressed maximise the opportunities available GDP growth rates for the UK being in in certain sectors and to adapt to the forefront of our minds, we expect all legislative changes in the region to hold UK&I headcount broadly flat as required, including a proposed this year and to focus on maximising expansion of changes to the IR35 the profitability of the business. Intermediaries Legislation to the private sector in 2019.
* In constant currency
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Regional Overview
USA
Performance in 2017 GP Growth YoY* The USA is now our second largest Average headcount was down 8% Cont Perm Total region, representing 22% of Group YoY, however, period end headcount +21% +12% +18% GP. USA was our fastest growing was up 11% YoY providing a solid region in 2017, with GP up 18%*. platform for growth in 2018. Our strong performance in 2017 FY 2017 Mix Our Permanent division in the region was across both Contract up 21%* Cont Perm performed well in the year, with GP and Permanent up 12%*. This reflected up +12%* and excellent yields, up 69% 31% a significant improvement in GP +23%* YoY. Permanent growth was yields, primarily driven by a recovery in across all sectors, with strong growth in the Energy and Banking markets from Average Sales Headcount Banking & Finance, up 9%*. Permanent Growth YoY the weaker conditions experienced in Life Sciences was up 3%* YoY. Average 2016. Average headcount declined Cont Perm Total Permanent fees and average salaries by 8% YoY with both Contract and -8% -9% -8% declined YoY, down 7%* and 6%*, Permanent headcount reducing respectively, driven by Banking & following a restructuring in 2016 and Finance and Energy. However, Life a pause on recruitment as potential Sciences, our largest sector in the impacts of the US presidential election division, delivered an increase in both result were assessed. However, we average fees and average salaries. made significant investment in Average headcount was down 9% headcount in the second half of YoY, however with increased business the year. Period end headcount confidence in the region, headcount was up 15% YoY with both Contract build resumed in the second half of and Permanent growing sequentially the year. Period end sales headcount in Q3 and Q4. was up 23% YoY. Contract GP was up 21%* YoY with Life Sciences which represents 46% growth across all quarters. Average of USA GP, grew 13%* YoY with growth headcount declined by 8% and across both Contract and Permanent. as a result yields were up 31%*. An Banking & Finance, the second largest improved performance in Contract sector in the region, grew 2%* YoY with GP was evident across all sectors with strong performance in Permanent, our largest sector, Life Sciences, which up 9%* YoY, offset by a decline in represents 45% of the division, up 18%* Contract, down 6%* YoY. The Energy YoY. Energy GP was up 68%* as we market in the region showed an en- expanded our services to key clients. couraging recovery in the year, Contract runners were up 14% YoY up 71%* YoY with growth across with GPDR down 3%*, however, GPDR both Contract and Permanent. grew sequentially in Q3 and Q4.
Expectations for 2018 With a good exit rate on Contract D.C. in December 2017 to service runners, up 14%, especially in Energy, the needs of our clients in this region. and excellent permanent yields, we In the USA, we are confident that we expect to continue our strong growth have the right team and structure to into 2018. We will continue to invest in deliver a high quality service to our headcount in high yielding markets clients and continue to penetrate as opportunities are identified. We the largest recruitment market in opened a new office in Washington the world.
* In constant currency
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Regional Overview
APAC & ME
Performance in 2017 GP Growth YoY* APAC and Middle East (‘APAC & ME’) runner book at year end (up 3%) was Cont Perm Total is our smallest region representing 7% supported by an increased focus on +24% -22% -4% of Group GP. The business is split into Contract in the Middle East. GPDR two regions: Australia, Japan, Hong declined 11%* YoY and was down Kong and Singapore (APAC) which across the region. Australia, which FY 2017 Mix represent 5% of Group GP and Dubai represents 53% of regional Contract Cont Perm (Middle East) which represents 2% of GP, saw good growth of 20%* YoY, 51% 49% Group GP. The region has struggled driven by ICT and Banking & Finance. since the drop in the oil price in However, we note a slowdown in our mid-2014. The upstream Energy performance in the ICT market as we Average Sales Headcount Growth YoY business, which historically had been exit this year. Dubai, which is our second the backbone of the operation, has largest Contract business in the Cont Perm Total not recovered due to the relatively region, saw a significant improvement, -6% -17% -14% high break-even price of oil extraction with Contract GP ahead by 49%* in the region. This has been YoY. The growth in Dubai was largely compounded by weak Banking & due to the Energy market, where we Finance markets in 2016 and a focus on large international service slow-down in the rate of growth in companies. Banking in Dubai also China, which has impacted much showed modest growth in the year. of APAC. In 2017, the region reported 2017 was a challenging year for an overall GP decline of 4%* YoY. Permanent with GP declining 22%* YoY. Despite a significant improvement in Average headcount for Permanent Contract GP, the Permanent business was down 17% YoY with yields down deteriorated through the year. 5%*. We increased our focus in the Australia, our largest country in the year on the penetration of markets region representing 34% of GP, with higher fees and stronger structural declined 2%*. In response to the growth opportunities, notably Japan, continuing decline in the performance the second largest recruitment of the region, we announced that market in the world. Our Japanese the Hong Kong office would be Permanent business increased GP downsized, reducing it to a satellite by 30%* YoY and now represents office. Average headcount for the 32% of Permanent GP for the region. region was down 11% YoY and period Average Permanent fees for Japan end headcount was down 1% YoY. were up 2%* YoY with average Contract GP grew by 24%* YoY, with salaries also growing. average headcount down 6% YoY. Banking & Finance, our largest sector Energy and Banking & Finance for the region, remained relatively Contract GP were up 22%* and flat YoY. Energy saw strong growth, 41%* YoY, respectively. The recovery up 10%* YoY, driven by Dubai in Contract was generated from a Contract. Permanent GP was strong pipeline at the start of the down across all sectors. year across the region. The Contract
Expectations for 2018 Our Chief Operating Officer (‘COO’), and Middle East Contract are being Justin Hughes, led APAC & ME from managed for growth, while the rest Hong Kong until September 2017 of the region is being managed to when he returned to London to take maximise profitability. on the role of COO full time. Japan
* In constant currency
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Sector Overview
On a sector basis, Group GP benefited from a continued recovery in Energy, up 25%*, and solid growth in Life Sciences up 7%*. After a significant restructuring in 2016, Banking & Finance GP was down 2%* with average headcount down 11% YoY. ICT and Engineering grew, with GP up 1%* and 5%*, respectively. ICT suffered from a weak UK&I performance.
ICT
ICT which accounted for 43% of Contract, which was 75% of ICT, UK&I, our second largest ICT region Group GP in 2017, continues to be was up 4%* YoY. Runners in the sector remained challenging. ICT in the UK&I our largest and most established were up 6% YoY, with GPDR growth includes Public Sector, which was 33% sector. GP in this sector showed YoY of 2%* YoY. Permanent was down 6%* of ICT GP in the region. Public Sector growth for the fifteenth consecutive YoY, but saw a growth in average employment reforms and a general quarter, and provides opportunities permanent fees, up +2%* YoY and slowdown in activity in the UK had across all regions. We saw modest yields increased 4%*. an adverse impact which resulted in growth in GP in the year of 1%*, but Contract being down 17%* YoY and Continental Europe, which constitutes against a strong comparative in Permanent being down 22%* YoY. 63% of our ICT business, was up 12%* 2016, when GP was up 12%* YoY. YoY, against a strong prior year growth Our USA business grew 12%* YoY. The rate of growth slowed in this of 17%*. Contract GP in this region Although in 2017 USA is a small sector due to a deterioration in the had an exceptional performance, proportion of our total ICT business, performance of the UK&I. Although up 18%* YoY. Permanent, however, we are confident that our knowledge average headcount in this sector remained flat across the region. and expertise in this sector will enable was down 1% YoY, period end DACH, which is our largest Permanent us to maximise the market opportunity headcount was up 8%. The mix of ICT business, saw growth of 7%* YoY in this region, the largest ICT market headcount shifted further in favour and will remain a key area of in the world, over time. of Contract and Continental Europe. investment in 2018.
GP Growth YoY* FY 2017 Mix Avg Sales Headcount Growth YoY Cont Perm Total Cont Perm Cont Perm Total +4% -6% +1% 75% 25% +4% -10% -1%
Banking & Finance
Banking & Finance, represented 15% Contract GP yields were up 13%*. the region were up 25% YoY, which of Group GP in 2017, making it the Runners at the end of the year leaves us with a strong pipeline for third largest sector for the Group. were up 8%, with GPDR up 4%* YoY. 2018. Permanent GP in the region, We faced mixed trading conditions in Permanent GP declined, as expected, declined by 9%* YoY and there was this sector across our geographies, following a significant reduction in a moderate decline in Permanent with GP declining by 2%* YoY. Average headcount in 2016. GP was down average fee down 1%* YoY. headcount in this sector in the year 10%*, with headcount down 15%. The UK&I business performance declined by 11% following a Permanent yields therefore improved was hampered by uncertainty restructuring implemented in 2016 6%*. Average Permanent fees were around the EU referendum leading in response to difficult conditions in down by 1%* YoY. to cautious hiring decisions. The the global Banking market. Period Continental Europe, which was our reduced market confidence was end headcount was down 5%. largest region in this sector was up 7%* reflected in GP being down 22%*, Contract, which was 55% of Banking YoY. The growth was heavily supported with Contract GP down 10%* YoY & Finance, is more resilient and has by Contract, which was up 20%*, with and Permanent GP down 45%*. had considerable success, up 6%*, DACH, Benelux & France all showing despite a 7% drop in headcount. good growth. Contract Runners for
* In constant currency
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Sector Overview
Banking & Finance (continued)
The USA, which was our second 6%* YoY, but was showing signs of years, we will continue to monitor largest Banking & Finance market, improvement as we exited the year. performance in this sector and invest saw growth of 2%* YoY, driven mainly as opportunities arise. We see a strong While the Banking sector has from Permanent which was up 9% opportunity for Contract in Continental remained subdued over the last few YoY. Contract in this region declined Europe and Permanent in the USA.
GP Growth YoY* FY 2017 Mix Avg Sales Headcount Growth YoY Cont Perm Total Cont Perm Cont Perm Total +6% -10% -2% 55% 45% -7% -15% -11%
Global Energy
Energy now represents 9% of Group headcount up 19%. Contract yields USA, which accounts for 41% of Energy GP. Overall conditions in the Oil & Gas in the sector were up 21%* YoY, while GP, picked up significant upstream market have stabilised this year and GPDR remained flat* YoY. Contract and power business though the year. this supported strong growth in GP, up Runners at the end of the year were This lead to GP being up 71%* YoY, 25%* YoY (2016: down 29%* YoY). up 35%, providing a strong platform with Contract, which is the larger Although, we have seen growth in this for 2018. Permanent, although a small part of Energy USA, up 68%* and sector in 2017, we remain significantly part of Energy GP, was up 15%* YoY, Permanent up 117%* YoY. below our peak performance in 2014. with yields up 43%* and average UK&I, which is 6% of Energy GP, Our average headcount in the sector Permanent fees down 16%* YoY. declined 22%* YoY. APAC & ME was up 2%* YoY and with measured Continental Europe, which is 41% grew 10%* YoY. investment in Contract through the of Energy GP, was up 11%* YoY, with year in key markets, our period end We have noted significant YoY growth in both the Contract and headcount was up 17% YoY. improvements in both Continental Permanent divisions, up 11%* and 8%* Europe and USA this year in both Contract which is 93% of our Energy respectively. The growth in Contract Contract and Permanent. We will GP, was up 26%* YoY, with growth was across all countries in the region, continue to remain agile, but across all our geographies, excluding whereas Permanent growth was cautious, with our future UK&I. Average Contract headcount concentrated on the Netherlands. investments in the Energy sector. was up 4% YoY, with period end
GP Growth YoY* FY 2017 Mix Avg Sales Headcount Growth YoY Cont Perm Total Cont Perm Cont Perm Total +26% +15% +25% 93% 7% +4% -19% +2%
Life Sciences
We pride ourselves on being one headcount was up 9% YoY with was driven by a strong Contract of the largest global professional our two largest regions, Continental performance, up 18%* YoY, while recruiters in the Life Sciences market, Europe and Americas growing 13% Permanent grew 3%* YoY. We with growth opportunities across and 8%, respectively. Permanent GP, continue to invest in Life Sciences all our geographies and both our was down 4%* YoY, with Permanent in the USA, which is a key growth divisions. Life Sciences is now 22% average fee up 4%* YoY and market for the Group. Period end of Group GP and was up 7%* YoY, Permanent yields down 1%* YoY. headcount was up 24% YoY. with average headcount up 3%. Permanent average headcount Continental Europe accounts for declined 3% YoY, however, period Contract, which represents 64% of 38% of Life Sciences GP. GP was up end headcount grew 16%. Life Sciences GP, was up 15%* YoY, 4%* YoY, against tough comparatives with growth across all geographies. USA, our largest Life Sciences business, of 13%* in 2016. Contract GP in the Contract Runners were up 16% YoY, which accounts for 48% of GP, grew region was up 12%* YoY, with excellent but GPDR declined 5%*. Average strongly, up 13%* YoY. The growth growth in Benelux & France, up 59%*
* In constant currency
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Sector Review
Life Sciences (continued)
YoY. Permanent GP, was down 8%* YoY, UK&I, which was 11% of our Life by Contract, which grew +8%* YoY, against a tough prior year comparative Sciences GP, recorded moderate while Permanent declined by of an increase of 23%* YoY. growth of 3%*. The growth was driven 7%* YoY.
GP Growth YoY* FY 2017 Mix Avg Sales Headcount Growth YoY Cont Perm Total Cont Perm Cont Perm Total +15% -4% +7% 64% 36% +9% -3% +3%
Engineering
Engineering, which was 9% of our Contract, which represents 72% of YoY with Contract up 19%*, offset by Group GP is primarily focused on Engineering GP, was up 17%* YoY with a decline in Permanent down 25%* Continental Europe and UK&I. growth in both UK&I and Continental YoY. Contract Runners at year end USA Permanent, a fairly new Europe. Contract Runners are up were up 25%, providing a strong addition to our Engineering portfolio, 17% YoY with GPDR being flat*. pipeline for growth as we enter 2018. has had some initial success, with In comparison, Permanent GP was Engineering in the UK&I was up 8%* GP quadrupling YoY. Our average weaker, down 18%* YoY, with only USA YoY, with Contract up 12%* and headcount in this sector was up seeing significant growth. Permanent Permanent down 5%* YoY. 7% YoY, with most of the headcount average fees and yields in the sector increase in Contract. Period end declined 2%* and 8%*, respectively. sales headcount was up 26% YoY. Continental Europe, which represents We expect further opportunities 71% of Engineering GP, was up 2%* in this sector as we enter 2018.
GP Growth YoY* FY 2017 Mix Avg Sales Headcount Growth YoY Cont Perm Total Cont Perm Cont Perm Total +17% -18% +5% 72% 28% +21% -11% +7%
Outlook
Looking ahead to 2018, the further growth in the coming year. Our focus on customers, services momentum of our Contract We will continue to focus our and our people, underpinned by business and the strength of our headcount investment to maximise investment in technology and performances in the USA and our returns and to pay close attention innovation, gives us confidence Continental Europe leave us to productivity in Permanent and in the that we are set up for success as well-positioned for further growth. UK&I. The benefit of the restructuring we continue on our journey to and relocation of our support service become the number one STEM We have been encouraged by our function in the UK is expected to be talent provider in our markets. performance in 2017, particularly in fully realised during 2019. the last quarter, which has provided us with a strong platform to deliver
* In constant currency
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Regional Review - Continental Europe
Continental Europe represents over half ICT GP +12%* of the Group GP. It delivered a robust Netherlands GP +20%* performance in 2017 (GP 9%*), with Contract Runners +21% strong delivery in key markets.
GP - Growth YoY* Performance in 2017 Continental Europe is our largest Permanent, however, declined 7%*, 2017 150.6m +9% region, representing 52% of Group with average sales headcount 2016 127.5m +13% GP. GP was up 9%* YoY. down 5%.
Overall, we delivered strong growth in ICT, our largest sector, grew 12%* and 2015 103.2m +14% our largest region, supported by strong continues to be the strongest growth 2014 99.4m +12% labour markets and rising incomes. market in the region, with ICT Contract up 18%* and Permanent flat*. Netherlands was a stand out performer where GP grew 20%* YoY. We have opened offices in two new Sales Headcount - YoY Strong growth was achieved in countries, Austria and Spain, both of Contract across the region. Our which have strong STEM opportunities 2017 1,231 +18% Netherlands Contract business grew and enable us to follow our clients 2016 1,045 +4% 27%* YoY, France Contract grew 16%* into new countries. YoY and Germany Contract, up 12%* 2015 1,002 +11% YoY. We enter FY18 with a strong Contract runner book up 21% YoY. 2014 899
Expectations for 2018 FY 2017 - We exit the year with a strong In line with our Group strategy, we Contract / Permanent Mix contractor pipeline and a highly will continue to invest in Contract Perm Contract focused management team with throughout 2018, where we see 29% 71% a clear strategy. market opportunities. We will focus on improving Permanent productivity, with With the implementation of a selective headcount investments. transformational change programme in Germany, we aligned our structure Our investment in the Employee with external demands. This has Contractor Model (‘ECM’) in 2017 improved service delivery, streamlined has helped the region increase the FY 2017 - Sector Mix the organisation structure and number of contractors. We expect 16% 3% improved our attractiveness as an to leverage this further in 2018 across 12% employer. This should help us achieve the region. our growth targets and further 7% Overall, we are encouraged by the improve our client satisfaction. 52% strong growth and expect this to 10% continue in 2018. ICT Banking & Finance Energy Engineering Life Sciences Other
GP Growth YoY* Cont Perm Total +17% -7% +9%
Avg. Sales HC
David Rees Cont Perm Total CEO Continental Europe +21% -5% +10%
* In constant currency
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Regional Review - UK & Ireland
UK&I now represents 19% of the Group GP. Contract Engineering GP +12%* Political and economic uncertainty continue Contract Life to adversely impact the region. Sciences GP +8%*
Permanent Average Fee +4%* Performance in 2017 UK&I represents 19% of Group GP Public Sector. We have tendered to GP - Growth YoY* after GP fell 14%* YoY. these regulations and demonstrated our credentials in providing a high 2017 55.7m -14% It has been a challenging year for the quality, compliant service. UK dominated by further uncertainty. 2016 64.0m -8% The ‘Brexit’ negotiations and the UK’s We have seen a positive performance 2015 69.5m +5% snap general election affected market in Life Sciences Contract which has confidence leading to a decline in grown GP 8%* YoY. Permanent 2014 66.3m +9% both our divisions. Further reforms to Average Fees in Life Sciences are employment in the Public Sector up 11%* YoY providing a positive Sales Headcount - YoY have continued to adversely trend in this sector. impact this market. ICT and Banking & Finance, our 2017 511 -3% Contract GP in the UK&I was down two largest sectors in the region, 2016 530 -16% 11%* and Permanent GP down 22%*. continued to decline. However, we saw The contract division is generally more improvements in our Engineering GP 2015 634 +5% resilient to tough market conditions, which grew 8%* YoY. We have invested 2014 604 but was exacerbated by pricing in strong management internally pressures and changes to the IR35 and a weak Sterling is creating Intermediaries Regulation in the an improved export market. FY 2017 - Contract / Permanent Mix
Contract Expectations for 2018 Perm 79% We step into 2018 with continued We expect to remain flexible in 21% uncertainty. ‘Brexit’ uncertainty, allocating our resources to maximise increasing inflation and suppressed market opportunity and adapt to GDP growth rates for the UK, being all legislation changes in the region in the forefront of our minds, we as needed, including the recently expect to hold the UK&I headcount announced consultation on IR35 FY 2017 - Sector Mix broadly flat. Intermediaries Legislation in the Private Sector. 12% 1% 12%
3% 58% 14% ICT Banking & Finance Energy Engineering Life Sciences Other
GP Growth YoY* Cont Perm Total Mike Walker -11% -22% -14% Managing Director UK&I Avg. Sales HC Cont Perm Total -10% -17% -12%
* In constant currency
SThree plc Annual Report 2017 27 Overview Strategic Report Governance Financial Statements Shareholder Information
Regional Review - USA
USA is now the second largest and, in 2017, Energy GP +71%* the fastest growing region in the Group. It Life Sciences GP +13%* delivered a strong performance with Contract Contract Runners +14% GP up 21%* and Permanent GP up 12%*.
GP - Growth YoY* Performance in 2017 The USA is now our second largest 13%*. ICT grew by 12%*. We continue 2017 64.4m +18% region, representing 22% of Group to see further opportunities for growth 2016 50.7m - GP. It was our fastest growing region in all our markets. in 2017, up 18%*. 2015 45.5m +26% Our Permanent division in the region Our strong performance in 2017 was has performed well this year, up 2014 33.4m +73% across both Contract 21%* and 12%* with excellent yields. Banking Permanent 12%*. It reflects a significant & Finance and Energy were the key improvement in GP yields, primarily drivers of this success. Sales Headcount - YoY driven by a recovery in the Energy With increased confidence in the and Banking markets which 2017 353 +15% region, headcount build has resumed experienced weakness in 2016. on Permanent and Contract in the 2016 307 -17% The region experienced growth across second half of the year. Although the 2015 370 +34% Energy, Life Sciences and ICT. Energy average headcount in 2017 is down GP was up 71%* as we expanded our 8% YoY, period end sales headcount 2014 277 services to key clients. Life Sciences, is up 15%. our largest sector in the region grew FY 2017 - Contract / Permanent Mix Expectations for 2018 Contract With a good exit rate on Contract high quality service to our clients Perm 69% runners, up 14%, especially in Energy, and continue to penetrate the largest 31% and excellent Permanent yields, we recruitment market in the world. We expect to continue our strong growth remain agile to cater for any risks or into 2018. We will continue to invest opportunities that are posed by headcount in high yielding markets the market. as and when we see opportunities. Morgan Kavanagh heads up the USA, We have opened a new office in FY 2017 - Sector Mix following the departure of Steve Quinn Washington D.C. in December to (former CEO Americas) in September. service the needs of our clients. 14% 46% We are confident that we have the 22% right team and structure to deliver a 1% 17% ICT Banking & Finance Energy Engineering LIfe Sciences
GP Growth YoY* Cont Perm Total +21% +12% +18%
Avg. Sales HC Morgan Kavanagh Cont Perm Total Managing Director, USA -8% -9% -8%
* In constant currency
SThree plc Annual Report 2017 28 Overview Strategic Report Governance Financial Statements Shareholder Information
Regional Review - APAC & ME
Restructuring of the region has continued Contract GP +24%* over several years. Hong Kong was Japan Permanent restructured in FY17 to improve profitability GP +30%* and focus on faster growth areas such as Dubai Contract Runners +34% Dubai Contract and Japan Permanent.
GP - Growth YoY* Performance in 2017 2017 17.0m -4% APAC and Middle East represent 7% second largest recruitment market of Group GP, after GP fell 4% YoY. The in the world, is a key focus. We have 2016 16.4m -15% region includes Australia, Singapore, made significant progress in Japan 2015 17.5m -6% Japan, Hong Kong and Dubai. in the year with our Permanent GP up 30%* YoY and the establishment 2014 19.1m +12% This diverse region has continued to of a Contract business. be impacted by weaker Energy and Banking & Finance markets. Conditions Australia, our largest Contract Sales Headcount - YoY continue to be challenging in both business in the region is up 20%* YoY, these markets for the region. The mainly driven from ICT. However, we 2017 161 -1% business has been restructured over have noted a slowdown in the ICT several years, reducing headcount to market as we exit the year. 2016 163 -9% match market demand and reduce Dubai, our second largest Contract 2015 180 -28% the losses generated by the region. business in the region, has seen a 2014 250 A further restructuring of the region was significant improvement, with Contract made in the year with a restructure GP up 49%* YoY. The growth in Dubai of our Hong Kong office. Our focus is is largely driven by the Energy market, FY 2017 - now on penetration of markets with where we focus on large, international Contract / Permanent Mix higher fees and stronger structural service companies, but Banking has growth opportunities. Japan, the also shown modest growth in the year. Contract Perm 51% 49% Expectations for 2018 Japan will be our key growth market in Middle East Contract will be monitored the APAC region and will be managed closely to ensure timely investments for growth, while others will be are being made as necessary. managed to maximise profitability. FY 2017 - Sector Mix
14% 28%
20%
38%
ICT Banking & Finance Energy Life Sciences
GP Growth YoY* Justin Hughes Cont Perm Total CEO APAC & ME +24% -22% -4%
Avg. Sales HC Cont Perm Total -6% -17% -14%
* In constant currency
SThree plc Annual Report 2017 29 Overview Strategic Report Governance Financial Statements Shareholder Information
Five Year Financial Review
Gross Profit (£m) Operating Profit (£m)
2017 287.7 2017 (1) 44.9
2016 258.7 2016 (2) 41.3
2015 235.7 2015 41.5
2014 218.2 2014 29.8
2013 199.8 2013 21.2
Adjustments to Profit Before Tax
£’million 2017 2016
Reported profit before tax after exceptional items 37.7 37.3
Exceptional strategic restructuring costs (1) 6.7 -
Reported profit before tax and exceptional items 44.5 37.3
Non-exceptional restructuring costs (2) - 3.5
Adjusted profit before tax 44.5 40.8
Conversion Ratio (%) Cash Conversion (%)
2017 (1) 15.6 2017 (1) 79
2016 (2) 16.0 2016 (2) 96
2015 (3) 17.6 2015 (3) 126
2014 13.7 2014 48
2013 10.9 2013 80
Basic Earnings per Share (pence) Notes
2017 (1) 25.7 (1) 2017 figures were adjusted for the impact of £6.7 million of exceptional strategic restructuring costs. 2016 (2) 23.2 (2) 2016 figures were adjusted for the impact of £3.5 million in restructuring of certain sales businesses 2015 (3) 23.2 and central support functions. 2014 16.3 (3) 2015 figures exclude the impact of £0.4 million exceptional gain and were also adjusted for Energy 2013 9.1 restructuring and impairment costs of £3.1 million.
SThree plc Annual Report 2017 30 Overview Strategic Report Governance Financial Statements Shareholder Information
Chief Financial Officer’s Review
In 2017, we delivered a robust financial performance ahead of market expectations. Our improved operational performance was further supported by currency appreciation against the pound, which enhanced growth in our Revenue, Gross Profit and Profit Before Tax.
Alex Smith SThree Chief Financial Officer
Income Statement
Revenue for the year was up 9% on a in the year (2016: 67%). This change We have reported certain KPIs on constant currency basis to £1.1 billion in mix resulted in a decrease in the an ‘Adjusted’ basis to provide a (2016: £959.9 million) and up 16% overall GP margin to 25.8% (2016: more like-for-like view of performance. on a reported basis. On a constant 26.9%) as Permanent revenue has Adjusted profit before tax was up 9% currency basis, Gross Profit (‘GP’) no cost of sale, whereas the cost of at £44.5 million (2016: £40.8 million) increased by 4%, and on a reported paying the contractor is deducted supported by foreign exchange basis by 11% to £287.7 million (2016: to derive Contract GP. The Contract tailwinds of c.£5.0 million. On a £258.7 million) supported by foreign margin remained robust at 19.8% constant currency basis, our exchange tailwinds of c.£18.1 million. (2016: 19.9%). adjusted profit before tax was Growth in revenue exceeded the down 3%. This is reflected in a decline Reported profit before tax was broadly growth in GP as the business continued in our operating profit conversion ratio flat at £37.7 million. Restructuring to remix towards Contract. Contract of 0.4 percentage points to 15.6% costs have been incurred in the represented 71% of the Group GP (2016: 16.0%). current and prior year.
Gross Profit Growth +4%* to £287.7m 2016: +2% to £258.7m
Adjusted Profit Before Tax +9% to £44.5m (-3% in constant currency) 2016: flat at £40.8m
Net Cash Balance
£5.6m 2016: £10.0m
Adjusted Basic Earnings per Share +11% to 25.7p 2016: 23.2p
* In constant currency
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Chief Financial Officer’s Review
Income Statement (continued)
Our operating performance in Adjusted Operating Profit £m Adjusted Operating Profit Conversion Ratio the period has been strong with increased sales team yields driving 2017 44.9 2017 15.6% our GP growth, but our cost base has 2016 41.3 2016 16.0% increased as we invest in innovation, to secure the future of our business, 2015 41.5 2015 17.6% and incurred other non-exceptional 2014 29.8 2014 13.7% restructuring costs in the year.
Key Financial information
2017 2016 Variance (3)
Constant Actual Currency Adjusted (1) Reported Adjusted (2) Reported Movement Movement Revenue (£ million) 1,114.5 1,114.5 959.9 959.9 +16% +9%
Gross profit (£ million) 287.7 287.7 258.7 258.7 +11% +4%
Operating profit (£ million) 44.9 38.2 41.3 37.8 +9% -3%
OP Conversion ratio (%) 15.6% 13.3% 16.0% 14.6% -0.4%pts -1.2%pts
Profit before tax (£ million) 44.5 37.7 40.8 37.3 +9% -3%
Basic earnings per share (pence) 25.7p 21.5p 23.2p 21.2p +11% -1%
Proposed final dividend (pence) 9.3p 9.3p 9.3p 9.3p Flat Flat
Total dividend (pence) 14.0p 14.0p 14.0p 14.0p Flat Flat
Net cash (£ million) 5.6 5.6 10.0 10.0
(1) 2017 figures were adjusted for the impact (2) 2016 figures were adjusted for the impact (3) All variances compare adjusted 2017 of £6.7 million of exceptional strategic of £3.5 million of restructuring costs. against adjusted 2016 to provide a restructuring costs. like-for-like view
Restructuring costs (‘Adjusting items’)
On 1 November 2017, as part of £15 million is operating expenses and of excellence in Glasgow in 2018 is a strategic reassessment of our UK approximately £0.5 million is property expected to be between £8 million operations, we announced that ft out costs (to be capitalised), less and £9 million, with a grant of up to we were commencing a consultation approximately £2 million of grants c.£2 million potentially receivable with employees on the proposed receivable from Scottish Enterprise. over several years. relocation of support functions away The costs are mainly related to In the prior year, we carried out from our London headquarters to people, property and professional a restructuring of certain sales a new facility located in Glasgow, advisor fees. businesses and central support along with a restructuring of the Exceptional costs of £6.7 million functions in response to the adverse marketing department. The purpose have been recognised and market conditions in certain sectors of this strategic restructuring is to separately disclosed in the Income and regions. These actions resulted in realise cost savings of approximately Statement in 2017, including £1.1 one-off redundancy costs of £3.5 million. £4 - £5 million per annum. million of restructuring costs incurred Due to their nature and magnitude, The restructuring is expected to or accrued, mainly for professional the restructuring costs in the 2017 result in certain material one-off costs fees, and £5.6 million as a provision and 2016 financial years have been totalling approximately £14 million for redundancy costs. The additional separately highlighted to help to £16 million, of which an estimated exceptional cost to set up a centre
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Chief Financial Officer’s Review
Restructuring costs (‘Adjusting items’) [continued] readers understand the Group’s A reconciliation of ‘Adjusting items’ is provided below: underlying results for the year (‘Adjusted’). The Group’s adjusted £’million 2017 2016 profit KPIs for the year are presented Reported profit before tax after exceptional items 37.7 37.3 in various sections of this Annual Exceptional strategic restructuring costs 6.7 - Report. The strategic nature and material cost of the restructuring Reported profit before tax and exceptional items 44.5 37.3 of support functions announced Non-exceptional restructuring costs (1) - 3.5 in 2017 is of sufficient magnitude to warrant separate disclosure as an Adjusted profit before tax 44.5 40.8 exceptional item on the face of the (1) 2016 figures were adjusted for the restructuring of certain sales businesses and central support functions. Consolidated Income Statement, in line with our accounting policy.
Operating costs
Adjusted operating costs, excluding Payroll costs represent 79% of our management with the confidence one-off restructuring costs of £6.7 cost base. Average total headcount to invest in headcount in the USA million (2016: £3.5 million), increased was flat at 2,668, with total sales and Continental Europe in the by 12% to £242.8 million (2016: £217.4 headcount down 1%. The drop in second half of the year. Year-end million). The increase was mainly driven average sales headcount is headcount was up 11% at 2,866. by an adverse foreign exchange attributable to a restructuring of Year-end sales headcount represented impact of c.£13 million, focused our Permanent business, in which 79% of the total Group headcount. expenditure on innovation (c.£2 headcount was significantly reduced million), management delayering in the second half of 2016 in response The full benefits of the restructure of (c.£1.2 million) and a restructure of to market conditions. Selective our UK Support function on personnel our Hong Kong business (c.£0.4 million). headcount build continued and property costs are expected to throughout 2017. Improvements be realised from the financial year in consultant productivity and the 2019 onwards. strength of market activity provided
Cost Base Payroll Costs Year-End Total Headcount
5% 2% 16% 2017 2,866 6% 8% 2016 2,590 79% 84% 2015 2,752
2014 2,483
Payroll Property IT & Professional Sales Support Services Advertising Other
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Chief Financial Officer’s Review
Investments
During the year, we invested in a capital of HRecTech Sandpit Limited innovation incubator was focused on number of innovation start-ups (£1.2 (‘HRecTech’) for a total consideration Talent Deck, a recruitment platform million), created our own innovation of £0.8 million. The Sandpit Limited is a focused on cultural ft and automated incubator (c.£2 million) and invested privately owned group that specialises matching that is now in the initial stages in new technology to serve the in developing early stage start-up of its roll-out. We expect to increase needs of our customers (£3.4 million, companies within defined markets. the amount spent on the creation of which £1.9 million in the year was of innovative products to c.£3 million We continued to support Ryalto in spent on developing a new contract in the current financial year. which we have an 18% investment, management system and a purchasing convertible bonds for We expect to reduce our investment contractor timesheet application). a total consideration of $0.5 million in non-innovation technology spend Our most significant investment (£0.4 million) in October 2017. in the current financial year as we in innovation start-ups was a 30% relocate our IT function. The bulk of our investment in our own non-controlling interest in the share
Impairment of investment in subsidiaries (Company only)
During the year, we reviewed significant downturn in the trading sector; changes in working practices the recoverable amount of the performance and prospects of in the Public Sector, namely IR35 Company’s own portfolio of the UK business. This was the result and framework agreements, investments, including SThree UK of several factors, including: the and reduced margins impacting Holdings, which in turn owns SThree unfavourable impact of the ongoing the profitability of the UK region. Partnership LLP, and determined political uncertainties following the After booking this impairment, the that an impairment loss of £88 million EU referendum on trading in the distributable retained earnings were needs to be recognised due to the Permanent division and Banking £179.9 million (£2016: £267.3 million).
Taxation
The tax charge on pre-exceptional research and development tax credits. (i) The extent to which the OECD statutory profit before tax for the year member countries continue US Tax Reform legislation passed on was £11.4 million (2016: £10.1 million), to implement changes to 20 December 2017 sees the reduction representing an effective tax rate domestic legislation as a result of in the federal corporate tax rate from (‘ETR’) of 25.6% (2016: 27.0%). The ETR recommendations from the Base 35% to 21%. This will have an overall on post-exceptional statutory profit Erosion and Profit Shifting project. positive impact on our business with before tax was 26.7% (2016: 27.0%). an estimated annual tax saving of £1 (ii) The October 2017 announcement The ETR primarily reflects our million at current levels of profitability. of the European Union Competition geographical mix of profits and a This is a non-adjusting post balance Commissioner’s State Aid cautious approach to recognising sheet event. The full benefit of this will investigation into the UK’s assets on tax losses. The ETR will also largely be offset in the first year by the Controlled Foreign Company be influenced by any changes to reduction in the deferred tax asset. legislation. tax rates and legislation, which may Other regulatory changes which We will continue to monitor and result in certain expenses not allowable may impact the group in future assess the impact of any changes for tax, non-taxable income or years include: as they are implemented. enhanced tax deductions such as
Earnings per share (‘EPS’)
On an adjusted basis, EPS was up On a reported basis, EPS remained explained above. The weighted by 2.5 pence at 25.7 pence (2016: broadly flat at 21.5 pence, up 0.3 average number of shares used for adjusted 23.2 pence), due to an pence on the prior year (2016: 21.2 basic EPS remained stable at 128.6 increase in the adjusted profit before pence), attributable mainly to an million (2016: 128.3 million). Reported tax and a drop in the effective tax rate. increase in restructuring costs as diluted EPS was 20.8 pence
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Chief Financial Officer’s Review
Earnings per share (‘EPS’) (continued)
(2016: 20.6 pence), up 0.2 pence. tracker shares will vary in future periods Adjusted Basic EPS (pence) Share dilution mainly results from depending on the profitability of the 2017 25.7 various share options in place and underlying tracker businesses, the 2016 23.2 expected future settlement of volume of new tracker arrangements certain tracker shares. The dilutive created and the settlement of 2015 23.2 effect on EPS from vested arrangements. 2014 16.3
Dividends
In line with the Group’s strategy to Taken together with the interim dividend, which amounts to c.£12.1 operate a policy of financing the dividend of 4.7 pence per share million, will be subject to shareholder activities and development of the (2016: 4.7 pence), this brings the total approval at the 2018 Annual General Group from retained earnings and dividend for the year to 14.0 pence Meeting. It will be paid on 8 June to maintain a strong balance sheet per share (2016: 14.0 pence). This 2018 to shareholders on the register position, the Board has proposed represents a dividend yield of 4% on 27 April 2018. a maintained final dividend of 9.3 based on the average share price pence per share (2016: 9.3 pence). for the year (2016: 5%). The final
Share options and tracker share arrangements
We recognised a share-based employees invested an equivalent of ‘Share-based payments’. There is payment charge of £3.3 million during £0.4 million in 15 Group businesses. no charge to the income statement the year (2016: £2.9 million) for the as initially the tracker shareholders We settled certain vested tracker Group’s various share-based incentive subscribed to the tracker shares at shares during the year for a total schemes. The greater charge in 2017 their fair value. We expect future consideration of £3.2 million (2016: is primarily due to an increase in the tracker share settlements to be £4.6 million) which was determined number of participants in the 2017 between £5 million to £15 million using a formula in the Articles of Long Term Incentive Plan (‘LTIP’), per annum. These settlements will Association underpinning the tracker and an improvement in regional either dilute the earnings of SThree share businesses. We settled the performance metrics for legacy LTIPs. plc’s existing ordinary shareholders if consideration in SThree plc shares funded by new issue of shares or will We also operate a tracker share either by issuing new shares (393,910 result in a cash outflow if funded model to help retain and motivate new shares were issued on settlement via treasury shares. our entrepreneurial management of vested tracker shares in 2017) within the business. The programme or treasury shares (in total 647,507 Note 1 to the financial statements gives our most senior front office were used in settlement of vested provides further details about all sales colleagues a chance to invest tracker shares in 2017). Consequently, Group-wide discretionary share in a business they manage with the the arrangement is deemed to be plans, including the tracker share support and economies of scale that an equity-settled share-based arrangements. the Group can offer them. In 2017, 38 payment arrangement under IFRS 2
Balance sheet
At 30 November 2017, the Group’s trade receivables (including accrued increase in Contract GP in Q4 year- net assets increased to £80.7 million income) which increased to £217.7 on-year. Trade and other payables (2016: £75.7 million), mainly due to the million (2016: £182.6 million), with increased from £138.9 million to excess of net profit over the dividend £2.3 million of the increase due to £159.6 million, with £2.2 million due payments and share buy backs a favourable change in foreign to movements in foreign exchange during the year supported by a exchange rate. Other drivers of an rates and the remainder primarily strengthening of the Euro vs Sterling. increase in receivables are a three day due to an increase in Contract GP. increase in Days Sales Outstanding to Creditor days were 18 days (2016: The most significant item in our 40.6 days (2016: 37.5 days) and a 14% 19 days). Provisions increased by statement of financial position is
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Chief Financial Officer’s Review
Balance sheet (continued)
£8.7 million primarily due to a provisions, including a provision for functions from London to Glasgow £6.7 million increase in restructuring the relocation of central support (£5.6 million).
Cash Flow Bridge 2017
On an adjusted basis, we generated Income tax payments increased a small cash outflow representing lower cash from operations of to £10.9 million (2016: £8.5 million). distributions to tracker shareholders. £41.1 million (2016: £46.9 million on The figures shown for 2016 reflected We started the year with the net an adjusted basis) due to continued a lower than usual outflow due to cash of £10.0 million and closed the growth of the contract runner book advanced tax payments made in financial year with a lower but solid increasing our working capital and an 2015. Small cash outflows were made net cash balance of £5.6 million. increase in Days Sales Outstanding. for interest payments. The year-on-year decrease primarily This resulted in a lower cash conversion reflected increased cash absorbed ratio of 78.6% (2016: 96%) on an Dividend payments were £18.0 million in working capital. adjusted basis or 90.2% (2016: 95.0%) (2016: £18.0 million) and there was on a reported basis.
Capital expenditure reduced to £5.8 million (2016: £7.2 million), of which £47.7m (£8.4m) 33% was related to investments in (£7.0m) innovative technology to improve (£7.5m) our customer experience. We expect capital expenditure will further decline (£11.2m) in 2018. Investments in associates and available for sale assets of £1.2 million (£18.1m) (2016: £0.7 million) were made in the year. £10.0m £5.6m During the year, SThree plc bought back shares amounting to £7.8 million (2016: £6.8 million) to satisfy YE 2016 EBITDA Working Capex Own Shares Taxes Dividends, YE 2017 employee share schemes in future Net Cash Capital & Other less Share and Net incl. Net Cash and FX Investment Options Interest distributions periods. Small cash inflows were Settlements to tracker s/holders generated from share based payment schemes. Note: EBITDA includes share based payments and other non-cash items
Treasury management
We finance the Group’s operations We maintain a committed Revolving maintain a ratio of net debt to adjusted through equity and bank borrowings. Credit Facility (‘RCF’) of £50 million, EBITDA of 2.0 times or lower, and The Group’s cash management along with an uncommitted £20 maintain interest cover of at least policy is to minimise interest payments million accordion facility, with Citibank 1.2. In 2017, we ended the year by closely managing Group cash and HSBC, giving the Group an option with significant headroom on our balances and external borrowings. to increase its total borrowings to £70 covenants, with a net cash balance We intend to continue this strategy million for general corporate purposes. of £5.6 million and interest cover while maintaining a strong balance We also have a separate £5 million (including dividends) of 3:1. The funds sheet position. In general, we do not overdraft facility with RBS. At the year borrowed under this facility bear keep excess cash in any of the end the Group had drawn down £12 interest at an annual rate of 1.3% countries in which we operate. We million (2016: £nil) on these facilities. above 3 month LIBOR giving an have central cash pooling facilities in average interest rate of 1.5% during The RCF is subject to financial place for Euros and US Dollars. the year (2016: 1.8%). The finance covenants whereby we need to
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Chief Financial Officer’s Review
Treasury management (continued) costs for the year amounted to £0.4 million (2016: £0.5 million). The RCF expires in May 2019 and we will renew the facility in the first half of 2018.
The Group’s UK-based treasury function manages the Group’s treasury risks in accordance with policies and procedures set by the Board, and is responsible for day-to-day cash management; the arrangement of external borrowing facilities; the investment of surplus funds; and the management of the Group’s interest rate and foreign exchange risks. The treasury function does not engage in speculative transactions or operate as a profit centre.
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 entities being Sterling, the Euro and the US Dollar. For 2017, movements in exchange rates between Sterling and the Euro and the US Dollar provided a strong tailwind to the reported performance of the Group with the highest impact coming from Eurozone countries. Over the course of the year, the exchange rate movements increased our reported 2017 GP and operating profit by c.£18.1 million and £5.0 million, respectively. Our financial performance KPIs remain materially sensitive to exchange rate movements. By way of illustration, each one percent movement in annual exchange rates of the Euro and the US Dollar against Sterling impacted our 2017 GP by £1.5 million and £0.6 million, respectively, and operating profit by £0.5 million and £0.2 million, respectively.
The Board considers it appropriate in certain cases to use derivative financial instruments as part of its day-to-day cash management to provide the Group with protection against adverse movements in the Euro and the US dollar during the settlement period. The Group does not use derivatives to hedge translational foreign exchange exposure in its balance sheet and income statement.
SThree plc Annual Report 2017 37 Overview Strategic Report Governance Financial Statements Shareholder Information
Key Performance Indicators
By implementing centrally designed strategic priorities, all of our businesses in 16 countries work together towards the same Group objectives: grow Group Gross Profit; increase earnings and shareholder returns; drive strong cash conversion; foster a skilled, motivated and engaged team; drive business growth in Contract and an improvement in Permanent yields; run efficient and socially responsible operations; and provide an excellent experience to our customers. Our key performance indicators (‘KPIs’) help the Board of Directors and Executive Management assess returns to shareholders and performance against our six strategic priorities.
Strategic priorities
1. Grow and extend region sectors and services
2. Develop and sustain great customer relationships
3. Focus on Contract, drive Permanent profitability
4. Generate incremental revenues through Innovation and M&A
5. Build infrastructure for leveraged growth
6. Find, retain and develop great people
Changes to KPIs
We have updated some of our KPIs • We have added Female in minimising our environmental this year to better align to our Representation in Key Sales Roles footprint. evolved strategy and future and Employee Net Promoter Score • We have added Customer Net remuneration policy. as these will align with the measure Promoter Score as a measure to used for executive remuneration. • We have replaced Adjusted track progress made in developing Operating Profit with Adjusted • We have added Investments in and sustaining great customer Profit Before Tax. Carbon Offsetting Initiatives’, as relationships. a KPI to report on Group progress
SThree plc Annual Report 2017 38 Overview Strategic Report Governance Financial Statements Shareholder Information
Key Performance Indicators
There are two categories of KPIs: financial and non-financial. Group Financial KPIs
Link to KPI 2017 Performance strategy
1. Gross Profit £287.7m +11% (+4%*) Group gross profit was up this year, on an FX tailwind 1 Revenue less cost of sales. Gross Profit £m of £18 million and growth Also known as Net Fee Income. 2017 288 in our Contract business, 6 Purpose: A broad indicator of 2016 259 especially in Continental how the business is trading and 2015 236 Europe. growing over time. Used for 2017 2014 218
Group LTIP strategic objective. *In constant currency
2. Contract Margin 19.8% flat Contract gross margin remained broadly flat on 1 Contract gross profit as a Contract Margin prior year, owing to high percentage of Contract revenue. 2017 19.8% pressure on margin from the Purpose: Increasing margins is 2016 19.9% existing clients in Oil & Gas, an indicator of business quality 2015 19.8% and Banking sectors. Grow Group Gross Profit Gross Group Grow and the service we offer. 2014 20.0%
3. Consultant Yield £11.5k +12% The increase in consultant Objective: Objective: yield is attributable to an 3 Gross profit divided by the Group Consultant Yield increased mix towards higher average sales headcount 2017 11,470 margin regions, a remix divided by 12. 5 2016 10,200 towards Contract, and Purpose: This is an indicator 2015 9,300 maintaining the level of of the productivity of the sales 2014 9,100 headcount/lower churn. 6 teams.
Link to KPI 2017 Performance strategy
4. Adjusted Profit Before Tax £44.5m +9% (-3%*) Profit Before Tax was up on last year largely due to an 1 Gross Profit less administrative Adjusted Profit Before Tax £m FX tailwind of £5 million. A expenses, less interest before 2017 44.5 reduction on a constant adjusting items. 3 2016 40.8 currency basis has arisen Purpose: A broad indicator 2015 40.8 as we invest in service of how the business is trading 2014 29.3 infrastructure and innovation 5 and how efficient we are in to support future growth. managing our cost base. Used for Group STIP. *In constant currency
The increase in TSR primarily 5. Total Shareholder Return 19.1% +31% pts reflects an increase in 1 Increase earningsIncrease and returns (‘TSR’) Total Shareholder Return confidence in the business Share price growth plus dividends. 2017 19.1% and the global macro- 3 Purpose: Used by investors to -11.6% 2016 economic conditions.
Objective: Objective: assess growth in share price vs 2015 14.8% other companies. Used for 5 2014 1.0% Group LTIP.
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Key Performance Indicators
Group Financial KPIs (continued)
Link to KPI 2017 Performance strategy
Adjusted Basic EPS 6. Adjusted Basic Earnings 25.7p +11%** per Share (‘EPS’) increased due to the 1 Adjusted Basic EPS (pence) increase in profit before tax Profit after tax before adjusting 2017 25.7 and a consistent effective items divided by the weighted 3 tax rate. The weighted average number of shares in 2016 23.2 2015 23.2 average number of shares in issue during the year. 5 2014 16.3 issue during the period was Purpose: Used by investors to broadly flat at 128.6 million assess return of a business vs (2016: 128.3 million). share price. Used for Group
LTIP vesting in conjunction with determining the Group ** Excludes the impact of £6.7m historical PE ratio for tracker restructuring costs (2016: £3.5m). share settlements
The decrease is due to 7. Adjusted Operating 15.6% -0.4% pts** adjusted operating profit 1 Profit Conversion Ratio Adjusted Operating Profit Increase earningsIncrease and returns growing at a slower rate Operating profit before Conversion Ratio than gross profit (see above). adjusting items stated as a 2017 15.6% 3 percentage of gross profit. 2016 16.0%
Objective: Objective: Purpose: It measures sales 2015 17.6% 5 team productivity, how 2014 13.7% effective we are at controlling costs associated with underlying operations ** Excludes the impact of £6.7m and our support costs. restructuring costs (2016: £3.5m). Used for Group STIP.
Link to KPI 2017 Performance strategy
Cash conversion has fallen. 8. Adjusted Cash 78.6% -18% pts Conversion Ratio As we increase the rate of 3 Adjusted Cash Conversion Ratio growth in our contractor Cash generated from 2017 78.6% runner book, more cash is operations for the year after absorbed into working deducting capex, stated as 2016 96.0% capital. The announcement a percentage of operating 2015 126.0% of our relocation of support profit before adjusting items 2014 48.0% to Glasgow has also had Purpose: It measures a a temporary adverse impact business’s ability to convert on our DSOs.
Drive strong cash generation Drive strong profit into cash. Used for Group STIP. Objective: Objective:
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Key Performance Indicators
Group Non-Financial KPIs
Link to KPI 2017 Performance strategy
9A. People Measures Heads/Churn To achieve our strategic growth plans and expand 2 Year End Sales 2017 2,257 36% 2016 2,044 38% efficiently, we must attract Headcount/Churn and retain sufficient 2015 2,185 38% 6 Churn is calculated as the headcount, thereby building 2014 2,081 37% number of leavers in a year as a the experience pool and percentage of the average sales avoiding re-training. headcount. Headcount is based Lower churn in the current on full time equivalent heads in year helped drive place at the year end. increased productivity. Purpose: These are the measures of employee retention and also an indicator of how well a business is run. Churn is used for the Group STIP and LTIP.
9B. People Measures Level 3 We strive to promote a 26% in FY17 +6%pts positive and inclusive work 6 Female Representation environment. We have in Key Sales Roles maintained a focused Female representation in a approach to the particular sales cohort (e.g. SL3 Level 4 development of our female or SL4) is calculated as number 10% in FY17 -12%pts talent throughout 2017. This of female employees at each year has seen us launch job level at the year end as a IdentiFy, a programme to percentage of the total prepare our future female
headcount at that job level leaders and ensure we at that particular point. achieve our aspiration to Level 3 cohort represents Sales Interns Purpose: A broad indicator of the balance at Level 4 Cohort. and Resourcers inclusivity at SThree. It is included Level 4 cohort represents Sales Business as a measure in the FY17 LTIP. Managers Foster and retain a skilled, motivated and engaged team and engaged motivated a skilled, Foster and retain 9C. People Measures Average eNPS: In 2017, when the eNPS 25.4 in FY17 was introduced, over 70% 6 Employee Net Promotor of SThree employees
Objective: Objective: Score (‘eNPS’) responded about their Quarterly employee survey Broken down as follows experience of working at introduced to capture regular eNPS Global: 25.4 SThree, as well as how they feedback from employees about eNPS Global Sales: 32.9 view the services we offer their experience at SThree. eNPS Global Support: -4.4 our customers.
Purpose: eNPS will help us make Overall, we have had a the right changes based on positive start, with a good employee feedback and track average score of 25.4. We what is working using our eNPS will now look to improve on benchmark this YoY.
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Key Performance Indicators
Group Non-Financial KPIs (continued)
Link to KPI 2017 Performance strategy
10. Contract/Perm Mix Adjusted Cash Conversion Ratio The Group continues to 3 Proportion of gross profit attributable to 29% 33% remix towards its Contract and Permanent placements. Contract business, Purpose: Having an increased mix 2017 2016 which has proven towards Contract helps to protect the to be more Group from cyclical extremes, typical 71% 67% profitable and of the recruitment sector, and helps more resilient. drive profitability. Perm Contract
11. Contract Runners 10,197 +12% We experienced a significant increase 1 The number of period end Contractors 2017 in a number of on placement with one of the Group’s 2016 contract runners, clients at the end of the relevant period. 3 in particular in Purpose: It shows progress against our Continental Europe
Investment in Contract to accelerate in Contract Investment 10,197 9,078 Contract strategy at a point in time and the US markets. and is an indicator of future Contract Reaching over gross profit when considered in 10,000 contract growth and mitigate economic downturns and mitigate growth conjunction with average fees. runners was a key Objective: Objective: milestone for the Group.
12. Investments in ‘Carbon B score We continue to take steps to reduce our environmental impact, through 5 Offsetting’ Initiatives (flat YoY) increased data management and Total spend on energy and in the Carbon the completed rollout of FSC standard resource efficiency initiatives. Disclosure Project Act recycled paper. One focus area is IT, Purpose: A very broad where we are rolling out energy saving indicator of how the business measures, such as moving our on is managing its environmental premise system to a cloud platform. responsibly Objective: Objective: footprint over time. The move has enabled us to achieve a 31% drop in associated energy usage
and carbon savings of 102 tCO2e.
13. Customer Net Average NPS: NPS has progressed 2 Promotor Score 44 in FY17 steadily during the year. Placements Candidate and client surveys introduced from referrals grew to capture regular feedback from considerably year customers about their experience of on year, a clear working with SThree. indicator that our Purpose: It represents the likelihood customer experience
Provide an excellent Provide of our clients and candidates strategy is having a recommending our services to a measurable impact
customer experience friend or colleague. It is included within on our financial the Group STIP and LTIP targets. performance. Objective: Objective:
SThree plc Annual Report 2017 42 Overview Strategic Report Governance Financial Statements Shareholder Information
Risk Management Strategy
The successful management of risk is essential for us to deliver our strategic priorities. 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.
Our Enterprise Risk Management and Board. Our approach is to have prudent and analytical approach, as framework processes and an organisational structure, which well as clear delegations, all of which arrangements all help to ensure the allows close involvement of senior help to align the Group’s interests ongoing monitoring of principal risks management in all significant with those of shareholders. and controls by the Audit Committee decisions, combined with a
Enterprise Risk Management (‘ERM’)
We believe that the effective • regular oversight by the relevant and Group Management Board management of risk is based on a Committees; and (‘GMB’) through a variety of measures, mix of ‘top down’ and ‘bottom-up’ • reacting quickly to market including KPIs. Further detail is set out approaches, which include: conditions and the cycle. in the Corporate Governance Report. • our strategy setting process We have integrated ERM processes The Group continues to operate in • the quality of our people into our overall strategy, with risk diverse and increasingly demanding and culture appetite measures reviewed by niche/specialist sectors. As such, • established procedures the Board based on an assessment the Group’s strategic planning and and internal controls of its key risks (including reputational review processes are periodically reviewed to ensure alignment of • policies for highlighting risks), to ensure implementation of corporate, sector, regional and and controlling risks effective risk management processes and mitigation actions. These are support goals within the strategic • assurance via self-verifcation, periodically assessed by the Board plan in order to mitigate risks. internal audit and external audit
Our Approach to Risk - Governance and Oversight
Key risk governance and oversight is via the following:
Day-to-day risk Business and strategic Oversight and management risk management governance
Identify, manage Plan and manage Risk identification, and report risks performance, address oversight, appetite, operational / regional / sector policy setting, reporting, / business and culture issues internal control
Directors, Functions, Regional and Group SThree plc Board Business Unit - Local Sector Boards Management Risk Registers Board Audit Committee*
Quarterly reviews Six monthly reviews Six monthly reviews and annual workshop We believe that the effective management of risk is based on a mix of a * four meetings in year ‘top down’ and ‘bottom-up’ approach.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy
The Group’s principal risks to its business model and the processes through Key: Increasing Stable which it aims to manage these are outlined as follows:
Change in Link to status versus strategic Risk description Background/context Controls/mitigation prior year priority Macro-Economic Environment/Cyclicality
A change in the The performance of the The Group is well diversified in its market conditions Group has a relationship operations across geographies, sectors, 1 adversely impacting and dependence on the and mix of Permanent/Contract business. performance,thereby underlying growth of the Contract is more resilient in less certain 3 reducing profitability economies of the countries economic conditions than Permanent and liquidity. in which it operates in so far and also provides a counter cyclical cash as it impacts client and hedge working capital release of circa Any failure to react to candidate confidence. £10k per contract finisher in the event or to take advantage of a decline in business. of changes in the The recruitment sector, in economy in a timely particular, is highly cyclical The Group has a flexible cost base that manner can result and suffers from a lack of is carefully managed to react swiftly in over or under visibility which can make to changes in market activity. This was investment and even short/medium term demonstrated in our reaction to the therefore reduce planning or target setting impacts of the EU referendum in the UK and profitability. difficult. subdued Energy and Banking markets.
The Group has a strong balance sheet with low levels of net debt through the year and committed/flexible debt facilities to support the business.
The Group is cash generative and requires low levels of capital investment.
Although political uncertainty continues in the UK, the current global economic outlook has broadly improved through the year. We continue to monitor the impact of Brexit and assess how we mitigate our risks in the UK with opportunities in Continental Europe, especially in Banking & Finance.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls/mitigation prior year priority Competitive Environment/Business Model
Competitors, social The Group faces increasing Diversify into more geographies/sectors. media or disruptive competitor risk in more mature Focus on specialist/niche roles in developing 1 technology/ markets, where there is also markets to resist pricing pressure. innovation taking strong competition for both Investment in online presence and partnering 3 market share and clients and candidates. with LinkedIn to improve customer and putting pressure Increasing use of social media client experience. on margins. for recruitment purposes and 4 a trend towards outsourced Setting up an Innovation Board and project recruitment models, with groups to monitor market developments 5 associated margin pressures, and introduce structured creativity, so as can also impact. The realisation/ to help guard against the risk of disruptive commercialisation of a disruptive technology and position the Group as a technology or other innovation disruptor itself. This has led to investments in (e.g. web based, low margin businesses such as Ryalto, RoboRecruiter operators) by either a current and HRecTech Sandpit, as well as the or new competitor could development of products such as threaten the Group by Talent Deck, Showcaser and Hirestream. challenging the viability Increased focus on customers, targeting of the current business model and tracking NPS scores. and therefore the ability to sustain revenue and profits. Greater regulatory and compliance requirements on Contract are increasing the barriers to entry. We continue to monitor the impact of Brexit.
Despite all mitigating measures, competitive pressures and greater prevalence of market disruptors have further raised the risk status.
Commercial Relationships/Customer Risk
Some customers may The Group benefits from close Strong credit rating and verification be unable to fulfil commercial relationships with procedures to manage bad debts, 1 financial obligations key clients, predominantly in working capital, credit control and resulting in the write the private sector and is always other financial risks. The Group has a 2 off of debts subject to the risk that some diverse mix of clients and is not financially customers might be unable dependent on any single client. to fulfil obligations.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls/mitigation prior year priority Availability of Candidates
Not enough The availability of highly skilled/ Expanding into newer geographies/ candidates to fill roles quality candidates is essential sectors to protect against lower candidate 1 to meet client needs, to operating in niche/high availability in more mature markets. leading to a loss of margin markets and changes Investment in online presence and partnering 2 business and a in the other risk areas can with LinkedIn to improve customer and slowing of growth. affect candidate supply. client experience and aid retention, The risk increases as markets as well as tracking candidate NPS. become more mature/ We continue to monitor the impact of commoditised. Brexit in relation to EU and UK candidates.
Contractual Risk
With larger global Clients increasingly require Management seek to contain risks when service arrangements, more complex or onerous negotiating contracts and ensure that the 2 there may be demand contractual arrangements. nature of risks and their potential impact is for more onerous The placing of temporary understood. Contract approval processes 6 contract terms that workers generally represents with exceptions to standard terms, such as can increase the greater risk for the organisation liability or insurance require senior sign off, Group’s risk exposure. than Permanent placements. as defined in the Groups’ authority matrix. This risk increases in more We generally place responsibility for litigious environments. supervision and control directly with the client, excluding any consequential loss.
Our global legal team has the depth of knowledge and experience to enable them to advise the business on the level of risks posed by non-standard contracts.
Assurance work is undertaken by the Group internal audit team to monitor compliance, especially in higher risk sectors such as Energy.
For risks that cannot otherwise be mitigated, insurance cover is purchased where appropriate.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls/mitigation prior year priority People/Talent Acquisition/Retention
High churn rates or the The Group is reliant on its A structured induction programme and loss of key talent could ability to recruit, train, develop career development with ongoing training 6 slow our growth and and retain high performing and competitive pay/benefits structures, reduce profitability. individuals to meet its growth linked to performance. Equity stakes for strategy. Failure to attract and senior individuals. retain individuals with the right Continual focus on engaging and skill-set, particularly those who developing key managers to ensure are more senior, may adversely succession planning. Training and affect the Group’s performance. development programmes to support At the same time, the Group’s expansion, whilst also providing a business model demands rewarding and challenging career. flexibility to expand or consolidate, depending on Greater focus on diversity and inclusion the economic environment. agenda, further development of ‘me@work’ to improve the structure of development High churn or the inability to plans and assist in facilitating more attract key talent can also rewarding careers, as well as the lead to insufficient mid and introduction of eNPS for employees. upper managerial bench strength in terms of breadth We maintained a focused approach of experience within or outside to the development and progression of SThree. As markets improve, the our female talent in SThree. In 2017, we risk of churn can increase. launched IdentiFy, a programme to prepare our future female leaders. Low female representation exposing us to reputational risk Churn rates have fallen in the year and and lack of diverse thinking. we continue to target further reductions as part of our strategic objectives setting.
We continue to monitor the impact of Brexit on our people/talent plans in relation to EU and UK employees.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls /mitigation prior year priority Information Technology/Cyber Risks
A serious system or The Group is reliant on The Group’s IT infrastructure is regularly third party disruption, delivering its service to clients reviewed to ensure it has capacity to 5 loss of data or security through a number of technology cope with a major data or system loss or breach could have systems and on delivering a security breach, with business continuity a material impact number of key internal projects arrangements in place. As a result of on the Group’s through third party IT specialists. increasing risks in this area, we have operations or further strengthened our investment A malicious cyber-attack which project delivery. in software and penetration testing. compromises the defences of a third party cloud provider/ Important third parties and suppliers website could pose significant provide essential IT and project infrastructure operational disruption to and their performance/robustness is SThree and/or result in the loss monitored to ensure business-critical of sensitive data, so damaging processes or projects are safeguarded as reputation. The increasing far as is practicably possible. prevalence of cyber attacks, IT systems and providers are periodically including at our peers, highlights reviewed to ensure they remain effective/ the risks in this area. safe and project management teams review risks associated in upgrading key systems, utilising robust management tools which monitor progress across the life of any project.
Data Processing / Management
A serious data The Group works with Procedures for handling and storing compliance failure confidential, sensitive and sensitive, confidential and personal data 5 could expose the personal data in a number are in place across the Group as part of Group to potential of countries on a daily basis its Data Protection and Information Security legal, financial and under a variety of laws and policies and procedures. Where data reputational risk. regulations. Introduction of protection and privacy legislation allows, the General Data Protection email monitoring is undertaken to address Regulation (‘GDPR’) will areas of concern and to protect necessitate significant confidential information. changes to our collection IT systems and providers are periodically and processing activity, to reviewed to ensure they remain effective/ be in place by May 2018. compliant. A cross functional project team was formed at the outset to progress initiatives which will ensure GDPR compliance, with regular updates provided to the Audit Committee.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls /mitigation prior year priority Compliance
Non-compliance with The specialist recruitment The Group is committed to meeting its laws or regulations can industry is governed by regulatory responsibilities and continues to 1 lead to increasingly increasing levels of regulation/ strengthen its training programmes, internal heavy fines/penalties compliance, which vary from controls, audit, compliance and other 3 which could expose country to country and processes with respect to legal and us to potential market to market. This includes contractual obligations, particularly in legal, financial or employment laws or regulations higher risk sectors such as Energy. reputational risk. specific to specialist business As employment laws are tightened, this sectors or temporary workers, creates both risks and opportunities. The which necessitate pre- Contract market is more heavily regulated employment or independence and changes in legislation may impact the checks and which may increase Group. Policies, compliance, on boarding the Group’s exposure to processes or systems therefore reflect potential legal, financial or specific market or sector needs and best reputational risk. Changes in practice, to meet legal or other legislation in the UK (IR35) and requirements and control risks, with our Netherlands (DBA), provide processes and systems being adapted both risks and opportunities, accordingly. The Internal Audit function such as our ECM model. carries out regular reviews to ensure that processes are being followed correctly and controls/systems function effectively.
Increasing regulatory pressure, including that arising from the OECD’s Base Erosion and Profit Shifting project, is monitored and as member states implement recommendations into their domestic legislation, our compliance obligations follow. Our tax strategy is designed to manage risks in this area and further details are published on our website.
Foreign Exchange Translation (‘FX’)
A significant adverse The Group has significant The Board annually reviews the Group’s movement in foreign operations outside the UK and treasury strategy to ensure that it remains 3 exchange rates may is consequently exposed to appropriate. Whilst the Group’s treasury reduce profitability. FX risk due to movements in department proactively monitors exchange rates. transactional FX exposures to ensure that they are minimised, translational impacts Following the EU referendum of movements in the relative value of in the UK in June 2016, there GBP are not hedged. has been significant volatility in the value of GBP.
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Risk Management Strategy
Principal Risks, Uncertainties, and Mitigation Strategy (continued)
Change in Link to status versus strategic Risk description Background/context Controls/mitigation prior year priority Transition of the Group central support function from London to Glasgow
A failure to effectively A loss of key talent before Glasgow was chosen as the location for a transition central transition has completed or Centre of Excellence for support functions, 1 support functions inadequate transition adds based on the broad availability of skilled could expose the operational/reputational risk. talent as well as cost. The Group has 2 Group to potential engaged experienced external Delays in transition could operational, financial consultants to project manage and lead to increased costs. and reputational risk. advise on the transition, as well as setting 5 up a steering committee, with Non The transition of central Executive Directors’ input. support functions relies on roles being A detailed plan for knowledge transfer is transferred effectively. in place and well progressed. Functions will only transfer when qualitative and quantitative performance metrics have been met. Enhanced redundancy packages have been set at a fair and reasonable level to maintain employee engagement throughout the transition.
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Risk Management Strategy
Principal and Compliance Targets
Both financial and non-financial KPIs are listed in the table below, is provided within the CEO’s and are used throughout the Group to including how these apply in other officers’ sections of this Annual drive results and monitor activities. a strategic, remuneration or risk Report, where appropriate. The principal non-financial indicators context. Further commentary
Definition and method Strategic/Remuneration/ Risk and Compliance 2017 2016 of calculation Risk context
Risk Management Aim to achieve Aim to achieve The Group has a well defined The Group’s success (see also principal a sensible risk/ a sensible risk/ ERM framework embedded is dependent on risks & uncertainties reward balance, reward balance, throughout the business using balancing risk and above and Corporate assessed via assessed via an EBITDA measurement scale reward. To achieve this Governance and risk map. risk map. to assess impact. Risk appetite it has integrated ERM Audit Committee levels are set by the Board and processes into its overall Reports) risks/mitigation are periodically strategy, with risk reviewed to ensure continued appetite measures alignment with strategy. set by the Board.
Compliance Targets Range of Range of Contractor compliance targets Compliance processes (by country/sector) metrics varying metrics varying in respect of client/contractor are regularly reviewed by region, by region, terms, rates/duration/types and to align with changing sector, deemed sector, deemed ID collection are set annually, local legislation, guard employment or employment or plus there is zero tolerance on against deemed misclassification misclassification code of conduct breaches employment or other risk. risk. or fines. Targets are Board risks and significantly assessed and reviewed mitigate risks in higher periodically. risk sectors. Insurance cover may also be strengthened, where necessary.
Environment/CSR Specific Specific Steadily improving targets Measures are agreed (see also CSR Report) targets, including targets, including are being set to reduce the strategically, but with diversity and diversity and Group’s carbon footprint local implementation carbon footprint carbon footprint and make savings in parameters, based on reduction. reduction. energy expenditure. specific office location, age, etc.
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Corporate and Social Responsibility Report SThree Foundation
Across our core business we continue to create long-term value for individuals, organisations and the wider economy. Through the effective use of our relationships and intellectual capital, our people help STEM insight placements resource life-changing sectors and specialist STEM 56 for students from diverse and underprivileged roles that enable industries and countries to thrive. backgrounds
raised through our In line with this our Corporate Social We have identified three CSR £36k first fundraising ball Responsibility (‘CSR’) vision remains strands by which we fulfil on our focused on ‘Transforming Lives vision and assess our progress as through Skills and Work’. a corporate citizen: Volunteering
We aspire to build a responsible, sustainable and trustful business working in partnership with organisations and local communities. A key starting point is creating an inspiring and inclusive work environment where we invest into our people and their ability instances of to build strong relationships with 1,250+ skills-based customers and create shared volunteering which has positively value for communities. impacted over beneficiaries 5,780 since 2011
Fundraising & corporate giving Community
SThree Foundation - working with people from underprivileged employers to support bright young backgrounds into work; people from underprivileged and Enterprise - sharing our diverse backgrounds into STEM. entrepreneurial mindset for success; We have three internal themes: Exceeded Strategic Support for Charities - our target £ million Employability and Aspiration - using our business skills to help 1 for SOS Children’s Villages in a using our core skills to support charities increase their impacts. nine year partnership, with 35 projects in 13 countries, directly benefitting some 3,000 people Workplace
Inclusion and Diversity - supporting continuous improvement supporting an inclusive culture in the way we do things and Employee engagement and raising awareness; wellbeing initiatives; Global Employee Net Promotor Employee Engagement - Talent and Leadership - investing Score benchmark of introduction of our quarterly in our employees through training 25.4 Employee Net Promoter Score, and development. listening to employees and Environment We offset our full 2016 global Environment carbon footprint to reach a climate neutral status, and Energy and Resource Efficiency- Reducing Waste - minimising maintained our B score in monitoring and managing impacts; consumption and recycling the Carbon Disclosure Project.
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Corporate and Social Responsibility Framework
Our 2017 sustainability focus
Our strategy today is more-people Generating Genius, the programme globe, with 100% of profit supporting focused than ever before. We are addresses societal challenges, such SOS Children’s Villages. committed to developing future as the future talent pipeline needed We continue to minimise our skills in our workplace, through our to meet the skills gap as well as environmental impact through core services and in our community creating access from an Inclusion increased data management initiatives. We continue to deliver on and Diversity perspective. and the completed rollout of FSC long-term results linked to our strategy By partnering with SOS Children’s standard paper, coupled with the by addressing global poverty, social Villages, we have shown our active introduction of secure print in the mobility and unemployment. support for investment in deprived UK which has already started to Completing a successful first year communities where we have a reduce overall paper and toner with our SThree Foundation was strategic interest. Through ‘From Babies use as well as waste. one of our key 2017 commitments. with Love’, we have now sent 68 new Through our network and with charity baby gifts for employees across the
Community Developing our talent and those in the community through skills-based support
We aim to achieve positive long-term well as being crucial to economic Key highlights impacts for communities by focusing prosperity. We understand that Total estimated our skills, time and resources to address in order to achieve long-term £430k value of community local needs where we operate and profitability, we must support the 2016: £385K programme on programmes that align with our wider system in which we operate. strategic interests. Through our community activities Our central theme remains we build the confidence and skills Employee volunteering skills shared ‘Employability and Aspiration’ to of people from underprivileged enable us to make the biggest backgrounds to help them move 815 hours this year contribution based on our business into meaningful careers, which knowledge and networks. brings a wide range of societal benefits including self-worth, The availability of skilled and motivated Fundraising and corporate giving productivity and economic growth. candidates to meet client needs is in nine year essential to our business growth as £1million partnership
Workplace Fostering long-term careers to support Group growth
Our people are our greatest asset. Our focus was to support the development Key highlights proposition for employees is a career and progression of women within Female representation with purpose and without limits. the organisation, since then, it has 28% in key roles evolved to support inclusion and 2016: 27% Inclusion and diversity diversity in all forms. At SThree we strive to promote We continue to drive progress a positive and inclusive work high-potential females and action against our aspirational environment where diverse opinions 30 invited to take part in IdentiFy gender targets. Globally we have and perspectives are valued and a solid representation of females in a true meritocracy exists. When Direct our Level 1 sales roles, currently at our internal diversity and inclusion 2,820 employment 45%, whilst increasing our Level 2 role programme was set up in 2011, our 2016: 2,552
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Corporate and Social Responsibility Framework
Workplace (continued) representation from 26% to 40%, Level Gender classification 3 from 19% to 26% and Level 4 from At 30 November 2017: 4% to 10%, since targets were put in Category Male % Female % place in July 2012. Females account for 60% of our support services roles. Directors of SThree plc 6 75% 2 25%
We have maintained a focused Senior Managers (Directors/LLP Partners) 48 79% 13 21% approach to the development Employees 1,492 53% 1,328 47% of our female talent. This year we launched IdentiFy, a programme to prepare our future female leaders were selected globally, which development to guide them through and ensure we achieve our aspiration includes being allocated a senior their careers and an opportunity to to balance at Level 4. Thirty females sponsor, receiving personal collaborate on a corporate project.
Environment Developing a sustainable business by minimising our environmental footprint
We recognise that our business Mandatory reporting 2013. As in 2016, our 2017 reporting activities have an impact on the We have continued to work with covers scope 1, 2, and 3 emissions. environment and are committed to Carbon Smart to ensure compliance Using a financial control approach, reducing emissions wherever possible. with the greenhouse gas (GHG) our calculated GHG emissions1 emissions reporting requirements of arising from business activities in the The Companies Act 2006 (Strategic financial year ended 30 November and Directors’ Reports) Regulations 2017 are as follows:
Tonnes of CO2e Baseline % change % change Emissions Source FY 2013 FY 2016 FY 2017 (vs PY) (baseline) Natural gas 195 154 120 -22% -39% Scope 1 Leased transport 855 388 506 30% -41% Purchased electricity 2,384/ 1,642/ -31% n/a Scope 2 1,9483 (market/location based)2 1,862 1,567 -16% -20% Water 122 71 71 0% -42% Business travel 1,400 1,673 2,007 0% -43% Scope 3 Paper 37 44 53 20% 43% Waste 20 24 111 19% 445% Electricity T&D 156 138 80 356% -49%
Total tonnes of CO2e (market based) n/a 4,876 4,589 -6% n/a
Total tonnes of CO2e (location based) 4,733 4,354 4,514 +4% -5% Number of employees 2,248 2,686 2,867 7% 28%
Tonnes of CO2e per employee 2.11 1.62 1.57 -3% -25%
1 The methodology used to calculate the (Defra, October 2013) and ISO 14064 – part 1. International Energy Agency. GHG emissions is in accordance with the 2 This work is partially based on the country- 3 Scope 2 dual reporting (market and location requirements of the following standards: the specific CO2 emission factors developed by based) was introduced in 2015/16 and so World Resources Institute Greenhouse Gas the International Energy Agency, © OECD/IEA market based emissions are not reported Protocol (revised version); ‘Environmental 2017 but the resulting work has been prepared in historic years. Reporting Guidelines: Including mandatory by Carbon Smart Limited and does not greenhouse gas emissions reporting guidance’ necessarily reflect the views of the
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Corporate and Social Responsibility Framework
Environment (continued)
Mandatory reporting (continued) CDP for the fourth consecutive year UK and Europe during October Our location based carbon footprint and maintained our score ‘B’ score to tackle unnecessary printing by has increased by 4% compared to from the previous year. This placed us reducing the number of printers in the prior year, primarily a result of above the industry and the overall use, as well as reducing toner waste. increased business travel – but has average score of ‘C’. CDP’s feedback We are reporting on waste and reduced by 3% on a per employee noted that our score is indicative of recycling for the second year and basis, indicating that whilst we are “more advanced environmental have seen enhanced data coverage growing our business, we are improving stewardship” and that we have taken across our portfolio. Waste emissions the efficiency of our operations. steps to “reduce negative climate have increased but can be attributed change impacts”. The 6% reduction in our absolute to more accurate reporting of site market based emissions on 2015-16, Energy and resource efficiency activities and an increase of 40% in and drop of 12% in these emissions This year we completed the multi- the carbon conversion factor issued per employee, reflects the carbon million pound investment in moving by the UK government. intensity of the electricity tariffs our online system to a new SaaS For waste electrical equipment, purchased by our global offices, as platform. The move to cloud services we use an accredited supplier opposed to location based emissions has enabled us to close one of our in line with the General Data which reflect the intensity of the UK data centres resulting in a Protection Regulation. average grid in each country, and is significant 31% drop in associated thus a more accurate representation energy usage and carbon savings We achieved carbon neutral status of our Scope 2 emissions. of 102 tCO2e. by offsetting all of our 2016 global emissions with ClimateCare. Carbon Disclosure Project (‘CDP’) Reducing waste As part of our commitment to Having identified paper as a disclosing our environmental significant resource, we launched performance, we responded to a Managed Print service across the
Targets and commitments for the year ahead
We have progressed against last further refresh CSR strategy and On environmental matters, we will year’s commitments. The development communications. explore setting carbon reduction of our SThree Foundation continues targets whilst continuing IT efficiencies On diversity, we have prepared to be a big focus, to be strengthened and working with external parties gender pay information in line with with a university scholarship scheme to maximise our environmental required reporting timelines and to encourage more female students performance within the agreed will further strengthen our IdentiFy into IT and Engineering. CDP framework. project whilst building on our We also continue regional work Employee Net Promotor Score for charitable giving, and plan to of 25.4.
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Governance Report
57 Chairman’s Governance Overview
59 Board of Directors & Secretary
61 Directors’ Report
67 Directors’ Remuneration Report
90 Corporate Governance Report
99 Audit Committee Report
106 Nomination Committee Report
107 Independent Auditors’ Report
SThreeSThree plc plc Annual Annual Report Report 2017 2017 56 Overview Strategic Report Governance Financial Statements Shareholder Information
Chairman’s Governance Overview
Dear Shareholder, I am pleased to present to you the Chairman’s Governance Overview section of the Annual Report and report on compliance with the UK Corporate Governance Code (the ‘Code’). The Group complied with all sections of the Code throughout the year and to the date of this report. Further detail on how the Clay Brendish Group has applied the principles and SThree Chairman provisions of the Code is set out in the Corporate Governance Report.
Governance arrangements seeking to encourage employee & stakeholder engagement share ownership more generally. As Chairman, I take primary Accordingly, a resolution for the responsibility for the Group’s tracker share arrangements is again governance arrangements and being put to shareholders at the remain confident that our proactivity forthcoming AGM in April 2018. on shareholder engagement and At the last AGM, shareholders standards of corporate governance voted overwhelmingly in favour of stand us in good stead. The Board all resolutions. This followed extensive continues to apply high standards consultation on a new remuneration of corporate governance, which it policy and we continue to evolve our believes, are intrinsic to the Group’s investor communications processes, strategy, culture and values, being hosting a Capital Markets Day (CMD) founded on integrity, professional in November 2017, scheduling excellence and sustainability. Such investor roadshows, as well as governance standards underpin continuing to offer governance the objectivity of our processes in lunches. All of these combined, support of financial and operational lead us to hope that investors will risk management, the design and continue to engage proactively operation of remuneration structures, with the Company throughout succession planning, as well as our any given year. work on diversity and values. They also provide a firm basis for the Board and Committees’ accountability of senior Evaluation management to the Board and Our last fully external Board of the Board to the Company’s evaluation was completed in stakeholders. March 2015. Following further recent Our growth to date has been changes to the Board in Q4 2017, strongly predicated on home-grown, we again decided to conduct an entrepreneurial talent, which we internal evaluation for FY 2017, as continue to back via the Group’s we did in FY 2016. Similar to last long established tracker share model year, this consisted of one on one (‘Minority Interest’ or ‘MI’), whilst also meetings between myself and the
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Chairman’s Governance Overview
Directors to discuss what is working of our entire senior management Employees well and what is not, as well as team for Executive or other key In November we announced a following up on the agreed actions Group roles and to identify the strategic review of our Global and changes from the FY 2016 next leadership cohort, with Non shared services centre in the UK, review, which were reported last Executive Directors (‘NEDs’) commencing a collective consultation year. Key learnings will be factored continuing to act as mentors. of a plan to relocate this from into our Board and Committee London to Glasgow during FY 2018. arrangements during FY 2018, Non Executive Directors This has not been an easy time for as we prepare for an external Following the departures of Nadhim our impacted employees at all levels evaluation. In addition, following Zahawi (after nine years tenure) and and I would like to thank everyone the recent Board changes, we are Fiona McLeod (as SID), James Bilefeld for their continued professionalism, already reviewing the content and and Barrie Brien were appointed as contribution and commitment, administrative arrangements for our NEDs in Q4 2017, being also appointed which are greatly valued. This move is Board and Committee meetings, to each of the Audit, Remuneration expected to play a key part in driving to make them even more efficient and Nomination Committees. This efficiencies and service excellence, and business aligned. followed an extensive interview which will help the Group to continue to deliver against future market We continue to remain confident process conducted via an external headwinds and macro uncertainties. that, overall and individually, the search consultant. James succeeded performance of the Board, each Fiona as SID and was also appointed Committee and each Director was as Chair designate, looking ahead to Clay Brendish and is effective and that all Directors ensure appropriate Chair succession Chairman demonstrate full commitment in at the next AGM and work is already their respective roles. progressing to ensure further 26 January 2018 NED strengthening.
Management and Whilst we were very sad to lose Succession Planning both Nadhim and Fiona and will During the year, the opportunity miss their valuable contribution at was taken to review the Executive Board and Committee meetings, management team structure, with both Barrie and James bring new a view to more closely aligning roles and complimentary skills to the to customers and markets globally, Board in terms of marketing, digital, as well as to products and services. as well as growing highly successful As part of this process, in Q4 2017, international businesses. Justin Hughes returned to the UK, broadening his role as COO, whilst Diversity and Values Steve Quinn stepped down as CEO, Our initiatives in these areas remain Americas, having been in that role critically important to instilling Group since 2013. During his time in the US, culture and reducing job churn Steve helped establish that business over the long term, with continued as one of SThree’s fastest growing, steady progress being made towards building a strong management team our targets as part of the ‘Identity’ and we thank him for his services. project, albeit churn remains higher His responsibilities as CEO, Americas, than we would like in some of our have been assumed by colleagues. regions. Specific targets for churn are We will now continue to embed disclosed in the Strategic Report. this structure fully and further changes Development initiatives are are planned during FY 2018, in order focused on ensuring that there is an to allow Gary Elden to focus ever appropriate management pipeline more closely on the Group’s strategic at all levels, with tailored courses priorities, including our innovation developed internally, as well as via workstreams, as showcased at YSC Consulting, who were engaged the CMD. In the meantime, work during the year, plus mentoring continues, directed by the Nomination by NEDs, all key parts of our Committee, to review the capabilities development programme.
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Board of Directors & Secretary
Gary Elden Senior Executive Program at Columbia Chief Executive Officer University, New York. Appointed: May 2008 Experience: Gary Elden OBE, was appointed Clay Brendish to the Board in July 2008, having been with Chairman the Group since 1990, when he joined Appointed: May 2010 Computer Futures. He has held a number of Experience: Clay Brendish, CBE joined the Gary Elden senior positions, including that of founding SThree Board in May 2010 as Non Executive Chief Executive Officer Managing Director of Huxley Associates. Chairman. In September 2017 he was appointed Lead Independent Director In his role as Chief Strategy Officer, he had of Richemont. Clay is currently Director of responsibility for the expansion of the Group’s the Test and Itchen Association Limited. international operations and non-ICT In December 2012, Clay was appointed disciplines. In June 2012, he was appointed a Trustee of the Wessex Chalk Stream as Deputy Chief Executive Officer and took and Rivers Trust. over from Russell Clements as Chief Executive Officer on 1 January, 2013. From 2005 until 2015 Clay was Non Executive Alex Smith Chairman of Anite plc and served on the Chief Financial Officer Alex Smith Remuneration and Nominations Committees. Chief Financial Officer From 2001 until 2011 he was a Non Executive Appointed: May 2008 Director of BT plc and served on the Experience: Alex Smith joined SThree Remuneration and Audit Committees. having held a number of senior financial and operational roles in the leisure and Denise Collis retail sectors. He previously held the position Non Executive Director of Integration Finance Director at TUI Travel Appointed: July 2016 Justin Hughes PLC and he was Finance Director of First Experience: Denise Collis was appointed Chief Operating Officer Choice’s UK Mainstream business. Prior to to the SThree Board, Nomination Committee these positions he was Managing Director and Remuneration Committee on of WH Smith’s Travel Retail business and 1 July 2016, and became Chair of the held senior financial roles at Travelodge Remuneration Committee on 1 September and Forte PLC. Alex has a degree in 2016. Denise is also a Non-Executive Director Economics from Durham University and is and Chair of the Remuneration Committee an Associate of the Institute of Chartered at Connect Group plc. In addition, she is Accountants in England & Wales. Chair of the Remuneration Committee and a member of the Advisory Council at the Clay Brendish SThree Chairman Justin Hughes British Heart Foundation, and sits on two Chief Operating Officer University Business School Advisory Boards. Appointed: June 2012 Previously, Denise was Chief People Officer Experience: Justin Hughes joined SThree for Bupa. She has extensive international in 1994, as a trainee recruitment consultant Human Resources and executive committee at Progressive. Making dynamic progress to experience, and has also held senior roles Sales Director and ultimately to Managing in 3iGroup plc, EY, Standard Chartered plc Director of Progressive. In 2007, he was the and HSBC. strategic driving force behind Progressive’s Denise Collis Non Executive Director international and global growth, as well as Anne Fahy overseeing the business’ diversification into Non Executive Director new market sectors, notably Pharmaceuticals, Appointed: October 2015 Oil and Gas. An SThree Main Board Experience: Anne Fahy was appointed appointee since June 2012, Justin is currently to the SThree Board, the Nomination Chief Operating Officer, charged with driving Committee and as Chair of the Audit the sustainable growth of the business Committee in October 2015. Anne is also through effective Operations and customer Non Executive Director and Chair of the service. He holds an Honours Degree in Audit Committee at Interserve, the Anne Fahy Economics and is a graduate of the international support services and Non Executive Director
SThree plc Annual Report 2017 59 Overview Strategic Report Governance Financial Statements Shareholder Information
Board of Directors & Secretary construction company, Nyrstar, a global Teach First (Trustee). James has an multi-metals business, with a market leading international track record of successfully position in zinc and lead and from the 1st growing digital businesses. He managed March 2018 Coats plc, a global industrial the digital transformation of media group, thread and consumer textile crafts business. Condé Nast, across 27 countries, scaled Prior to joining SThree, Anne was Chief Skype’s global operations as part of its Financial Officer of BP’s Aviation Fuels founding management team and held business. During her 27 years at BP, Anne senior management roles at Yahoo! during Steve Hornbuckle Company Secretary has gained extensive experience of its major growth phase. Formerly CEO of Legal Director global business, developing markets, risk global advertising technology company, management, internal control, compliance OpenX, he also co-founded the UK local and strategy development in BP’s aviation, information business, UpMyStreet, following petrochemicals, trading and retail sectors. a successful investment banking career Anne is a Fellow of the Institute of Chartered at JP Morgan Chase. Accountants in Ireland, having worked at KPMG in Ireland and Australia prior Barrie Brien to joining BP in 1988. Non Executive Director James Bilefield September 2017 Appointed: Non Executive Director, Steve Hornbuckle Experience: Barrie Brien was appointed Chair Designate & Senior Group Company Secretary & Legal Director to the SThree Board, Audit, Nomination Independent Director (SID) Appointed: October 2006 and Remuneration Committee on 11th Experience: Steve Hornbuckle joined the September 2017. Barrie is the former Group Group as Company Secretary in October Chief Executive of Creston plc (a media 2006, taking charge of Investor Relations and marketing communications group) matters in 2011 and was appointed Legal stepping down in April 2017 following its Director in 2013. Steve has over 25 years of sale and de-listing. Barrie was also Chief company secretarial experience, having Operating and Financial Officer of Creston held senior positions within a variety of listed plc from 2004 to 2014 and was extensively Barrie Brien companies, including Intertek Group plc, involved in the growth of the group with its Non Executive Director BPB plc, Kidde plc, Railtrack Group plc, buy and build strategy. Barrie currently sits London & Manchester Group plc and on the Professional Business Services (PBS) English China Clays plc. Steve is a Fellow Council, which advises government on key of the Institute of Chartered Secretaries issues facing the professions. Prior to Creston (‘ICSA’), sits on the ICSA Company plc, Barrie was previously Chief Operating Secretaries’ Forum and Investor Relations and Financial Officer for EMEA at Lowe Society Policy Committee and was voted and Draft Worldwide, having joined Lowe Company Secretary of the Year in 2011. & Partners in 1998 as Chief Financial Officer for Lowe UK; and spent six years at Saatchi James Bilefield & Saatchi, where he held senior positions Non Executive Director, Chair Designate across Europe and North America. & Senior Independent Director (SID) In addition to the extensive public Appointed: October 2017 company experience, including M&A, Experience: James Bilefeld was appointed fundraisings and investor relations, Barrie to the SThree Board, and to the Remuneration, has spent thirty years working in global Audit and Nomination Committees, on creative, digital, marketing and media 1st October 2017. James joined the Board companies advising clients across of Stagecoach Group plc on 1 February multiple industries on their marketing 2016, where he currently serves on the and communication. Remuneration and Nomination Committees and chairs the Digital and Technology Committee. Other appointments include Cruise. co (Chairman), McKinsey & Company (Senior Advisor), Advent International (Industry Advisor) and
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Directors’ Report
The Directors present their Annual Report on the activities of the Company and the Group, together with the financial statements for the year ended 30 November 2017. The Board confirms that these, taken as a whole, are fair, balanced and understandable and that the narrative sections of the report are consistent with the financial statements and Steve Hornbuckle accurately reflect the Group’s performance Group Company Secretary and financial position.
The Strategic Report, including the including branches outside the UK, The forward-looking statements CEO’s and other officers’ sections of are disclosed in the notes to the reflect knowledge and information this Annual Report, provide information financial statements. available at the date of preparation relating to the Group’s activities, its of this Annual Report and nothing The purpose of this Annual Report is to business, governance and strategy in this Annual Report should be provide information to the members and the principal risks and uncertainties construed as a profit forecast. of the Company, as a body. The faced by the business, including Company, its Directors, employees, The Directors confirm that they have analysis using financial and other agents or advisers do not accept carried out a robust assessment of KPIs where necessary. These sections, or assume responsibility to any other the principal risks facing the Company together with the Audit Committee, person to whom this document is and the Group, including those that Nomination Committee, Directors’ shown or into whose hands it may would threaten the business model, Remuneration, Corporate come and any such responsibility future performance, solvency or Governance and Corporate Social or liability is expressly disclaimed. liquidity and explained how they Responsibility (‘CSR’) Reports, provide This Annual Report contains certain are being managed or mitigated an overview of the Group, including forward-looking statements with (see analysis of key risks, mitigation environmental and employee matters respect to the operations, performance and impact on strategy within the and give an indication of future and the financial position of the Strategic report). developments in the Group’s Company and the Group. By their business, so providing a balanced Information on the Company, including nature, these statements involve assessment of the Group’s position legal form, domicile and registered uncertainty since future events and and prospects, in accordance with office address is included in note 1 circumstances can cause results the latest reporting requirements. to the financial statements. and developments to differ from The Group’s subsidiary undertakings, those anticipated.
Results, Dividends, Going Concern and Post Balance Sheet Events
Information in respect of the officers’ sections of this Annual No significant events have occurred Group’s results, dividends and other Report. A going concern and viability since the year end. key financial information is contained statement is included within the within the Strategic Report and other Corporate Governance Report.
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Directors’ Report
Directors and their Interests
The Directors of the Company, Corporate Governance Code, will undertakings. Key terms of the including their biographies, are retire at the 2018 AGM and submit Directors’ service contracts, interests shown within the Board of Directors themselves for election or re-election, in shares and options and tracker section of this Annual Report, with as necessary. Further information is also share loans are disclosed in the further details of Board Committee contained in the Notice of Meeting. Directors’ Remuneration Report. membership being set out in the Other than employment contracts Any related party interests applicable Corporate Governance Report. and tracker share LTIP/JOP loans, to the Directors is shown in note 23 All Directors served throughout the none of the Directors had a material to the financial statements. financial year, except as disclosed, interest in any contract with the and in accordance with the UK Company or its subsidiary
Essential Contractors and Implications Following a Change of Control or Takeover
The Group has business relationships following a takeover offer, with the compensation for loss of office with a number of contractors but is exception of the Citibank and HSBC or employment resulting from a not reliant on any single one. There revolving credit facility agreements. takeover, except that provisions of are no significant agreements, which the Group’s share plans and tracker The Company does not have the Company is party to that take share arrangements may cause agreements with any Director or effect, alter or terminate upon a options, awards or tracker shares employee that would provide change of control of the Company to vest on a takeover.
Tracker Share Arrangements (‘Minority Interests or MI Model’)
The Group regards its tracker share Typically, those managers of the new brands and businesses and differing model as a key factor in its success SThree business will be able to invest, rates of growth. and plans to create more of these at the Company’s discretion, in the Although there are a number of going forward, on similar terms to new venture and share in its success different businesses in which those previously created, subject as well as the risk of failure. individuals are invited to invest, to shareholder approval. As in prior years, only key individuals each invitation will generally be on Entrepreneurial employees within are invited to invest in the creation similar terms to that used previously. the Group often create ideas for of any new tracker share business. It is therefore deemed appropriate to new business opportunities, which In order to receive equity ownership put only one resolution to shareholders the Group may elect to pursue and such individuals must invest at fair each year, with each authority develop. Historically, the Group has value and be actively engaged in being granted for five years, although engaged with such individuals in that business for an agreed term. automatically renewed at each setting up new businesses for the Should the individual ultimately following AGM, or any adjournment purpose of pursuing these new wish to dispose of their stake, the thereof. ideas, which have typically evolved Company retains pre-emption rights. The proposed resolution, together organically out of one of the existing The minimum term for each new with the standard terms upon which SThree businesses, with the relevant tracker share stake is set at the outset tracker shares are normally issued, are managers then given the opportunity and will normally be five years, but outlined within each notice of AGM. to manage and develop that will never be less than three years, in new business. Further information on the tracker order to allow the Group flexibility to share arrangements is disclosed in adapt to the individual needs of its note 1 to the financial statements.
Share Capital and Share Rights
Details of the share capital of the The rights and obligations attached receive dividends and to vote at Company, together with movements to the Company’s ordinary shares general meetings of the Company. during the year are shown in the are contained in the Articles. They also have the right to a return notes to the financial statements. of capital on a winding up. Ordinary shares allow holders to
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Directors’ Report
Share Capital and Share Rights (continued)
There are no restrictions on the size ordinary shares, as well as to refuse does not satisfy the conditions set of holding or the transfer of shares, to register a transfer in circumstances out in the Articles. which are both governed by the where the holder of those shares The Company is not aware of any general provisions of the Company’s fails to comply with a notice issued agreements between shareholders Articles and legislation. Under the under Section 793 of the Companies that might result in the restriction of Articles, Directors have the power to Act 2006. The Directors also have the transfer of voting rights in relation to suspend voting rights and the right power to refuse to register any the shares held by such shareholders. to receive dividends in respect of transfer of certificated shares that
Authority to Issue or Make Listing Rules (‘LR’) Requirement Confirmation Purchases of Own Shares including as Treasury Shares and Dilution A statement of interest capitalised by the Group during the period and an indication of the amount Not applicable The Company is, until the date of and treatment of any related tax relief. the forthcoming AGM, generally and unconditionally authorised to issue Any information required by LR 9.2.18R (publication of and buy back a proportion of its unaudited financial information) regarding information Not applicable own ordinary shares. in Class 1 circular or prospectus or a profit forecast The Company’s policy is to comply and estimate. with investor guidelines on dilution limits for its share plans by using a Details of any long term incentive schemes as See Directors’ mixture of market purchased and required by LR 9.4.3R regarding information about Remuneration new issue shares. the recruitment or retention of a Director. Report (page 67)
Some 1,478,788 shares were Details of the waiver of emoluments by a Director, purchased in the market during Not applicable both current and future. the year, to be held as treasury shares. Shares are also held in the Details of the allotment of equity securities to equity Employee Benefit Trust (EBT). The shareholders otherwise than in proportion to their Directors will seek to renew the holdings and which had not been specifically Not applicable authority to purchase up to 10% authorised by the shareholders. This information of the Company’s issued share must also be given for any major unlisted subsidiary. capital at the next AGM.
Where the Company is a listed subsidiary, details of Director’s Indemnities, Director’s any participation by its parent in any share placing Not applicable and Officers’ Insurance and during the period. Conflicts of Interest Details of any contract of significance between the Section 236 of the Companies Act Company or one of its subsidiaries and a Director Not applicable 2006 allows companies the power or a controlling shareholder. to extend indemnities to Directors against liability to third parties Details of contracts for the provision of services to (excluding criminal and regulatory the Company or one of its subsidiaries by a controlling Not applicable penalties) and also to pay Directors’ shareholder during the period under review. legal costs in advance, provided that Details of any arrangements under which shareholders these are reimbursed to the Company Not applicable should the individual Director be have waived or agreed to waive dividends. convicted or, in an action brought by the Company, where judgment is A statement of the independence provisions and given against the Director. The Group compliance, or not, where there is a controlling Not applicable currently has in place and has shareholder. maintained such a policy throughout
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Directors’ Report
Director’s Indemnities, Director’s and Officers’ Insurance and Conflicts of Interest (continued) the year, which will reimburse the for all admissible claims. The Board also powers to authorise Directors’ conflicts Company for payments made confirms that there are appropriate of interest are operated effectively. to Directors (including legal fees), procedures in place to ensure that its
Related Party Transactions (‘RPT’)
Details of any RPT undertaken during the year are shown in the notes to the financial statements.
Financial Instruments and Research and Development
Information and policy in respect of The only expenditure incurred in the development, which is shown in the financial instruments is set out in the area of research and development notes to the financial statements. notes to the financial statements, relates to software and system together with information on price, credit and liquidity risks.
Substantial Shareholdings
As at the date of this report, the Group share capital of the Company, shown Directors’ interests table within the has been notified, in accordance below. Any interests of Directors which Directors’ Remuneration Report. with the Companies Act, of the amount to over 3% of the Company’s significant interests in the ordinary share capital are shown in the
CSR, including Diversity, Human Number of Percentage Rights & Environmental matters Name of Shareholder Shares shareholding
Franklin Templeton Institutional, LLC 13,956,150 10.74% The Board pays due regard to environmental, health and safety J O Hambro Capital Management Limited 12,995,328 9.99% and employment responsibilities and devotes appropriate resources William Frederick Bottriell 7,238,245 5.98% to monitoring compliance with and improving standards. The Chief HBOS plc 6,983,314 5.21% Executive Officer has responsibility for these areas at Board level, ensuring Harris Associates L.P. 6,575,593 5.17% that the Group’s policies are upheld AXA 6,291,253 5.12% and providing the necessary resources. Further information on diversity, JP Morgan Chase 7,021,061 5.07% human rights and environmental Legal & General Investment Management 7,030,279 Below 5% matters, including carbon dioxide Limited emissions data, is contained in the BlackRock, Inc. 6,137,031 4.99% CSR Report, whilst information on employee share plans and share FMR LLC 6,266,905 4.99% ownership is contained in the Directors’ Remuneration Report and FIL Limited (Fidelity) 6,028,475 4.95% the notes to the financial statements. F & C Management 6,104,400 4.82% Health, Safety and Equal Opportunities Standard Life Investments Limited 5,845,830 4.78% The Group is committed to providing for the health, safety and welfare of Allianz Global Investors GmbH 5,853,598 4.51%
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Directors’ Report
CSR, including Diversity, Human Rights & Environmental matters (continued) all current and potential employees, this involvement predominantly by Our Supply Chains every effort is made to ensure that communicating via the Group’s Our supply chains include country health, and safety legislation, intranet articles or email updates, management companies, job regulations or similar codes of training and by participation in the boards, property, media, IT equipment, practice are complied with. Group’s employee share plans to stationary and print suppliers, whilst align interests. our clients include large international The Group is also committed to and STEM businesses. achieving equal opportunities and Community complying with anti-discrimination Our Policies on Slavery The Group is committed to providing legislation and employees are and Human Trafficking support to the community and society encouraged to train and develop We are committed to ensuring that through a number of charitable their careers. Group policy is to offer there is no modern slavery or human activities and donations, although the opportunity to benefit from fair trafficking in our supply chains or no donations for political purposes of employment, without regard to gender, in any part of our business. We are any kind were made during the year. sexual orientation, marital status, race, committed to acting ethically and religion or belief, age or disability and Annual General Meeting (‘AGM’) with integrity in all our business full and fair consideration is given to The AGM of the Company will be relationships and to implementing the employment of disabled persons held on 26 April 2018, at 8th Floor, City and enforcing effective systems for all suitable jobs. Place, 55 Basinghall Street, London and controls to ensure slavery and EC2V 5DX. A separate notice details human trafficking is not taking place In the event of any employee all business to be transacted. anywhere in our supply chains. becoming disabled, every effort is made to ensure that employment Modern Slavery Act 2015: Slavery Due Diligence Processes for continues within the existing or a and Human Trafficking Statement Slavery and Human Trafficking similar role and it is the Group’s policy As part of our controls to identify Organisation’s structure to support disabled employees in all and mitigate risks, we have in place As an international specialist staffing aspects of their training, development processes and procedures to: company, we are committed to and promotion where it benefits improving our practices to combat • Identify and assess potential risk both the employee and the Group. slavery and human trafficking. areas in our supply chains; Management does not consider • Mitigate risks, including slavery Employee Involvement and human trafficking occurring The Group systematically provides there to be a risk of slavery or in our supply chains; employees with information on human trafficking taking place matters of concern to them, consulting within its supplier base. The Group • Continually monitor risk areas in where appropriate by surveys or other makes appropriate supplier checks our supply chains; and around governance and financial means, so that views can be taken • Protect whistle blowers, via a standing, and considers these into account when making decisions confidential and independent adequate to protect against slavery likely to affect their interests. Employee reporting process. involvement is encouraged, as is and human trafficking within the This statement is made pursuant to achieving a common awareness, Group’s supply chain. This helps to section 54(1) of the Modern Slavery on the part of all employees of the ensure, as far as possible, that no Act 2015 and constitutes our slavery financial, economic or other factors element of the supply chain and human trafficking statement affecting the Group. This plays contrives human rights issues. As such, for FY 2017. The Company’s Modern a major role in ensuring shared suc- there are no such issues impacting Slavery Act statement can be found cess. The Group encourages the Group’s business. on our website, www.sthree.com.
Independent Auditors
A formal audit tender was completed proposing that ensuing year, having indicated their in early FY 2017 and a resolution PricewaterhouseCoopers LLP be willingness to continue in office. will be put to the forthcoming AGM re-appointed as auditors for the
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Directors’ Report
Statement of Directors’ Responsibilities
The Directors are responsible for Report comply with the Companies In the case of each Director in office preparing the Annual Report, Act 2006 and, as regards the at the date the Directors’ Report including the Directors’ Remuneration Consolidated Group financial is approved: Report and the financial statements statements, Article 4 of the IAS • so far as the Director is aware, there in accordance with applicable law Regulation. They are also responsible is no relevant audit information of and regulations. Company law for safeguarding the assets of the which the Consolidated Group requires the Directors to prepare Consolidated Group and Company and Company’s auditors are financial statements for each financial and hence for taking reasonable unaware; and year. Under that law, the Directors have steps for the prevention and detection • they have taken all the steps prepared the Consolidated Group of fraud and other irregularities. that they ought to have taken and Company’s financial statements The Directors are responsible for the as a Director in order to make in accordance with International maintenance and integrity of the themselves aware of any relevant Financial Reporting Standards (IFRSs) Company’s website. Legislation in audit information and to establish as adopted by the European Union. the United Kingdom governing the that the Consolidated Group and Under Company law, the Directors preparation and dissemination of Company’s auditors are aware must not approve the financial financial statements may differ from of that information. statements unless they are satisfied legislation in other jurisdictions. that they give a true and fair view of the state of affairs of the Consolidated The Directors consider that the BY ORDER OF THE BOARD Group and the Company and of the Annual Report, taken as a whole, is Steve Hornbuckle profit or loss of the Consolidated fair, balanced and understandable, Group Company Secretary Group for that period. In preparing and provides the information 26 January 2018 these financial statements, the necessary for shareholders to assess Registered Office: 8th Floor, Directors are required to: the Consolidated Group and the City Place, • Select suitable accounting policies Company’s performance, business 55 Basinghall Street, and then apply them consistently; model and strategy. London, EC2V 5DX • Make judgements and accounting Each of the Directors, whose names estimates that are reasonable and and functions are shown within prudent; the Board of Directors & Secretary • State whether applicable IFRSs as section of this Annual Report, confirm adopted by the European Union that, to the best of their knowledge: have been followed, subject to • the Consolidated Group and any material departures disclosed Company financial statements, and explained in the financial which have been prepared in statements; and accordance with IFRSs as adopted • Prepare the financial statements by the European Union, give a true on the going concern basis unless and fair view of the assets, liabilities, it is inappropriate to presume that financial position and profit of the the Consolidated Group and Consolidated Group; and Company will continue in business. • the Directors’ Report, together The Directors are responsible for with the Strategic Report, keeping adequate accounting Chairman’s and other officers’ records that are sufficient to show sections of this Annual Report, and explain the Consolidated Group include a fair review of the and Company’s transactions and development and performance disclose with reasonable accuracy of the business and the position at any time the financial position of of the Consolidated Group and the Consolidated Group and Company, together with a Company and enable them to description of the principal risks ensure that the financial statements and uncertainties that are faced. and the Directors’ Remuneration
SThree plc Annual Report 2017 66 Overview Strategic Report Governance Financial Statements Shareholder Information
Directors’ Remuneration Report
Dear Shareholder, On behalf of the Board I am pleased to present the Remuneration Committee’s annual report on Directors’ remuneration for the year ended 30 November 2017.
Summary of Remuneration Policy result for the year, with a strong SThree’s current remuneration policy finish in the final quarter and was approved by shareholders at overall performance slightly ahead Denise Collis the 2017 AGM and is intended to of market expectations. This was Remuneration Committee Chair apply for three years from that driven by strong growth in the USA, date. The policy was presented for robust growth in Continental Europe, approval, following a comprehensive with a continued recovery in Energy review of remuneration and extensive and solid growth in Life Sciences. consultation with investors. As a Reflecting this performance, in Board, we are keenly aware of the relation to short term incentive sensitivities of the topic of executive payments for the year under review, pay for companies, employees and the annual bonus paid was just over shareholders and our approach 76% of maximum for the CEO and is to ensure that our pay policy CFO, with the COO at circa 65%, reflects the business strategy, with being reduced by a nil payout for remuneration payments that are the regional performance element strongly linked to performance. of his bonus. The Committee considers that In relation to the LTIP, this was based the current Executive Director on our performance over the three remuneration policy remains years to FY 2017. For the half of the appropriate and no changes award based on the EPS performance are proposed this year. condition, the requirement was for The fixed elements of the EPS growth to be between RPI +6% remuneration packages are set and RPI +19% per annum. Actual EPS so that they reflect the calibre and performance for FY 2017 was 25.7p, experience of the individuals and equating to growth of RPI +14.4% the complexity of their roles. The over the performance period and annual bonus measures are based resulting in 81.5% vesting of the on specific areas that require adjusted EPS part of the award. immediate focus, whereas the For the remaining half of the award LTIP looks to drive sustainable based on our Total Shareholder improvements at a more macro Return (‘TSR’) performance, our level over the longer term. Culturally, TSR was required to be between the setting of both financial and median and upper quartile broader non-financial measures performance against a peer serves to focus scheme participants group. Whilst our TSR was +19.1%, this on a more holistic view of business placed us below median, at 29th success and hence serves to drive out of 35 in the comparator group, performance on a broad, resulting in zero payout of this part of sustainable front. the award. The Committee remains comfortable that, overall, the annual Remuneration Payable for bonus and LTIP payments continue Performance in FY 2017 to represent a robust link between In relation to the annual bonus the reward and performance. Group delivered an encouraging
SThree plc Annual Report 2017 67 Overview Strategic Report Governance Financial Statements Shareholder Information
Directors’ Remuneration Report
Full details of the annual bonus and This particular change, in favour of a to date on our executive LTIP measures, performance against greater focus on the financial metrics, remuneration and looks forward them and resultant payments are will also allow for more simplicity and to maintaining a constructive set out in the Annual Report on is aligned with feedback received on-going dialogue. Remuneration. from shareholders. Denise Collis During the year Steve Quinn, our LTIP Chair of the Remuneration US CEO, stepped down from the EPS TSR Strategic measures Committee Board. His remuneration payable on FY 2017 1/3 1/3 1/3 cessation of employment comprises 26 January 2018 a bonus for FY 2017 (as he was in FY 2018 50% 30% 20% active employment for the full year) and outstanding LTIP awards have Details of the LTIP performance been scaled back pro rata, as a conditions are set out in the Annual ‘good leaver’. Other payments are Report on Remuneration. in line with his contractual provisions. The benefits package for Justin Hughes has been re-aligned to our Policy Implementation for FY 2018 standard UK suite of benefits for this The Committee has awarded all level, now that he has returned from Executive Directors salary increases Hong Kong to take up his role as of 2.5%, which is in line with the Group COO. average increase for employees generally. Changes to Committee The annual bonus opportunity will composition remain capped at 120% of base During the year, Fiona MacLeod salary, with deferral in shares for and Nadhim Zahawi stepped any bonus earned above 100% of down from the Board and this salary. The mix of measures will remain Committee. I thank them for their unchanged, with 65% financial, 25% valuable contribution and, in their shared strategic and 10% based on place, I would like to welcome James personal objectives. Relevant and Bilefield, who joined the Group as objective measures have been set Chairman-Designate, and Barrie for the shared strategic and personal Brien, both of whom also serve on the elements, with commensurate Audit and Nomination Committees. stretching targets.
There will be full retrospective Shareholder and broader disclosure of target ranges and stakeholder engagement performance for the bonus in the The remuneration policy was the following Annual Report on subject of extensive shareholder Remuneration. engagement prior to the April 2017 AGM. The Committee values the The LTIP will continue to be based opinions of its shareholders and on SThree’s performance over three other stakeholders and took their years and subject to a two-year views into account in designing the holding period post-vesting. For FY remuneration policy and also in its 2018, the grant level will be unchanged application for FY18. We will also at 150% of base salary. factor in shareholder views as we The Committee has reviewed the further evolve our thinking on policy performance measures for the LTIP as well as broader stakeholder input and has decided to rebalance such as the UK Government and these, as summarised in the table corporate governance reforms above. There will be a higher being proposed by the Financial weighting on the three-year EPS Reporting Council. targets and a reduced weighting The Committee appreciates the on the strategic element. support received from shareholders
SThree plc Annual Report 2017 68 Overview Strategic Report Governance Financial Statements Shareholder Information
Directors’ Remuneration Report
Remuneration at a Glance
Bonus - maximum potential 120% of base salary
Metric Threshold Maximum Actual Achievement % PBT £36.9m £45.1m £44.5m 94.1% Operating Conversion Ratio 13.8% 16.8% 15.6% 68.0% Cash Conversion Ratio 68.0% 84.0% 78.6% 72.5% Average Shared Strategic Achievement 67.5% 67.5% Average Personal Achievement 56.3% 56.3% Average Total Achievement 73.1%
2015 LTIP Award - grant 150% of base salary
Metric Threshold Maximum Actual Achievement % EPS 20.5p 28.9p 25.7p 81.5% TSR Median Upper quartile 29th out of 35 0%
Summary of Total Reward
2017 Reward Component CEO CFO COO Base Pay £'000 £442.0 £333.3 £330.0 Total Remuneration £'000 £1,228.8 £940.1 £864.5
2016 Base Pay £'000 £431.0 £325.0 £323.7 Total Remuneration £'000 £1,058.5 £808.4 £794.6
Remuneration Policy Summary - no changes proposed for FY 2018
Key Reward Component Key features Base Salary and Core benefits Salaries increased by 2.5% in line with employees Annual Bonus Maximum of 120% of salary, with any achievement above 100% - 65% Group Financial Target of salary paid in shares vesting in equal tranches over 2 years - 25% Strategic Target - 10% Personal Target LTIP Award Maximum award of shares worth 150% of salary pa, performance - 50% EPS tested, vesting after 3 years with a further 2 year holding period - 30% TSR - 20% Strategic Targets Shareholding Requirements Requirement to hold shares equivalent to 200% of salary
SThree plc Annual Report 2017 69 Overview Strategic Report Governance Financial Statements Shareholder Information
Directors’ Remuneration Report
Policy Report
The Group’s remuneration policy from that date. The remuneration and motivate Directors and senior set out below was approved by policy is designed to support the managers of a high calibre, to deliver shareholders at the AGM held on 20 strategic business objectives of the sustainable increases in long term April 2017 and applies for three years Group in order to attract, retain shareholder value.
Current and Future Policy Table
Element Purpose & Link to Strategy Operation Maximum Performance Metrics
Executive Directors
Base Sufficient to attract, retain Reviewed annually with any Increases will Not applicable Salary and motivate high calibre increases taking effect from normally be the individuals. 1 December. equivalent to the average salary increase for employees, other than in exceptional circumstances.
Benefits Market competitive Including Car Allowance, Cost of insured Not applicable benefits package. Private Medical Insurance, benefits will Permanent Health Insurance, vary in line with Life Assurance and Housing premiums. Other Allowance (if relocated). Other benefits will be at benefits may be introduced to a level considered ensure benefits overall are appropriate in the competitive and appropriate circumstances. for the circumstances.
Pension To provide a competitive Individuals may either 15% of base salary. Not applicable pension provision. participate in a pension plan into which the Company contributes or receive a salary supplement in lieu of pension.
Annual Incentivises high levels Deferral into shares for Maximum Achievement of agreed strategic Bonus of personal and team achievement over 100% of bonus payment and financial / operational annual performance, focused on salary, vesting in equal tranches is 120% of business targets, weighted in line the key business strategies over two years, subject to annual salary. with business priorities. A majority of and financial/operational continued employment. the performance conditions will be measures which will promote Dividend equivalent payments based on financial metrics. Sliding the long term success of accrue on deferred shares, scales are used for each metric the business. payable in cash or shares. wherever practicable with 20% Bonus may be subject to payable for achieving threshold clawback or malus being performance. Normally 50% of the applied, if appropriate, in maximum bonus is payable for the event of financial target performance for any financial misstatement, error or metric. Within the maximum limit, misconduct, which has the Committee may adjust bonus led to an over-payment. outcomes, based on the application of the bonus formula set at the start of the relevant year, if it considers the quantum to be inconsistent with the Company’s overall performance during the year.
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Directors’ Remuneration Report
Current and Future Policy Table (continued)
Element Purpose & Link to Strategy Operation Maximum Performance Metrics
Executive Directors
Long Term Incentivises and rewards LTIP awards may be The maximum Targets are reviewed annually Incentive Executives for the granted each year in award is 150% ahead of each grant to ensure Plan delivery of longer term the form of a conditional of salary pa they are aligned to the business strategic objectives and award of shares or a nil in normal strategy and performance to reward substantial cost option. LTIP awards circumstances outlook. A majority of the relative and absolute normally vest after three but may be performance conditions are increases in shareholder years. Dividend equivalent 175% of salary based on Group financial value. payments accrue on in exceptional performance and shareholder vested LTIP awards, payable circumstances. value- based outcomes. in cash or shares. Vested No more than 25% of an award LTIP awards must be held may vest for the threshold for a further two years level of performance. Within the before the shares may maximum limit, the Committee be sold (other than to pay may adjust vesting outcomes, if tax). LTIP awards may be it considers the quantum to be subject to clawback or inconsistent with the Company’s malus being applied, if overall performance during the appropriate, in the event year. Regional based financial of financial misstatement, metrics may be used for error or misconduct, Directors for a minority of the which has led to an award, where appropriate. over-payment.
All Employee Support and encourage HMRC approved SAYE In line with Not applicable Share Plans share ownership by and SIP participation is HMRC limits employees at all levels. available to all UK or lower limits employees, including specified by Executive Directors, on the Company similar terms. from time to time.
Share Alignment of Executive Executive Directors are Not Not applicable Ownership Directors’ interests with expected to build and applicable. Requirements those of investors. maintain a shareholding equivalent in value to no less than 200% of base salary. Until this threshold is achieved Executive Directors are normally required to retain no less than 50% of the net of tax value from vested LTIP, Deferred Bonus or other awards.
As part of this policy, any payments due under the terms of the previous policy are capable of being made.
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Directors’ Remuneration Report
Operation of Incentive Plans
The Committee’s policy is to review ensure that incentive plans provide in relation to the terms of all incentive performance measures for the a reward for rounded performance, plans, for instance (but not limited to) incentive schemes annually, so that while maintaining the alignment of adjustments required for corporate they continually align with strategic Executive and shareholder interests. restructuring and change of control. objectives. The Committee considers The Committee may exercise In designing incentive structures that linking annual bonus and the discretion in assessing achievement and approving incentive payments, vesting of LTIP awards to a combination against each stated target where the Committee pays due of different measures, capturing it considers that it would be fair and consideration to risk management share price, financial results and reasonable to do so. The Committee and environmental, social and non-financial performance, will may also exercise broader discretion governance (‘ESG’) issues.
Illustration of Potential FY 2018 Executive Directors’ Remuneration
The charts below show the remuneration potentially payable to Executive Directors under different performance scenarios.
£1,758 ong erm Incentive lan nn al on s Fi ed a
39% £1,334
£1,147 £1,136
38% 30% £872 39% £741 31% 29% 23% £535 31% 30% £411 30% 24% £347 23%
100% 47% 30% 100% 47% 31% 100% 47% 31%
elow elow elow arget arget arget hreshold hreshold hreshold a im m a im m a im m CEO CFO COO
Note: Assumptions for the charts above: allowance for Justin Hughes’] LTIP is the maximum bonus and full vesting of Fixed pay comprises base salary as at 1 The on-target level of bonus is 50% of the the LTIP award. No share price appreciation December 2017, pension contribution of 15% maximum opportunity. The on-target level of the has been assumed for deferred bonus or LTIP of salary and the value of benefits received LTIP is taken to be 50% of the value of a single awards and the value of all-employee share in FY 2017 (excluding housing and relocation year’s award. The maximum level of bonus and plans has been excluded.
Differences in Remuneration Policy for Executive Directors Compared to Other Employees
The Committee is made aware of Overall the remuneration policy for justifiable internally and externally to pay structures across the wider group Executive Directors is weighted more shareholders as a clear link between when setting policy for Executive to performance based pay and, in the value created for shareholders Directors, in particular in relation particular, long term share-based and the remuneration received by to any base salary review. incentives. This is to ensure that the Executives. relatively higher pay levels are
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Directors’ Remuneration Report
Consideration of Employment Conditions Elsewhere in the Group
The Company, in line with market any comprehensive cost-effective aware that market practice may practice, does not actively consult consultation process impractical. develop in this regard following the with employees on executive However, when setting the Executive Government’s review of Corporate remuneration. The Group has a Directors’ remuneration policy the Governance and will monitor diverse employee base operating in Committee takes into account the developments carefully. several different countries, with various pay and conditions of employees local practices, which would make more generally. The Committee is
Consideration of Shareholders’ Views in Determining the Remuneration Policy
The Committee actively consults appropriate, given the objective timent on reward and gives it due with shareholders on executive of ensuring that shareholders are consideration in considering remuneration policy changes. supportive of the policy and its the application of policy in the Feedback is taken on board and implementation. In addition, the years between the development any proposals are adjusted, as Company follows shareholder sen- of a new policy.
Remuneration Policy for Recruitment and Promotion
Base salary levels will be set in line with would be flexibility to make payments unvested incentive entitlements at a the policy taking account of individual to cover relocation related expenses. previous employer. The Committee circumstances. Where it is appropriate confirms that any such buy out Annual bonus would be in line with to offer a starting salary below the arrangements would only be used if the policy and there would be desired position initially, there is flexibility necessary, would take a similar form flexibility to set different performance to make increases at a faster rate to that surrendered (e.g. cash or conditions measurable over a part- than other Directors and employees, shares and timeframe), would take year, in the first year of appointment. subject to individual performance account of performance conditions and development in the role. For internal promotions, outstanding and quantum, and would be no incentive payments may vest on their greater than that which the individual Benefits and pension would be in original terms. For external recruits has forfeited on appointment. line with the policy. Additionally, there there may be a need to buy out
Policy on Directors’ Service Contracts and Payments for Loss of Office
The Executive Directors have rolling Depending on the circumstances the awards, on a pro rata basis, subject service contracts subject to a Committee may consider payments to still achieving any relevant maximum of 12 months’ notice by in respect of statutory entitlements, performance criteria. the Company or Executive. At the outplacement support and legal ‘Bad’ leavers such as a resignation Company’s discretion, on termination fees. Mitigation would be applied to would lose any entitlement to a payment may be made in lieu of reduce any payments associated participate in the bonus scheme notice equivalent to 12 months’ with loss of office. and any outstanding deferred bonus salary, which may be paid in monthly ‘Good’ leavers (e.g. redundancy or LTIP awards would normally lapse instalments and offset against future or retirement) may generally retain on cessation of employment. earnings. For new hires the policy is to any earned bonus or share based provide a 12 month notice period.
External Appointments
Executive Directors are encouraged with their existing role. This helps to Currently, no external appointments to undertake external appointments, broaden experience and capability, are held by any Executive Directors. where they are able to combine this which can benefit the Company.
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Directors’ Remuneration Report
Terms of Appointment and Remuneration Policy for Non Executive Directors (‘NEDs’)
NEDs are appointed for an initial In practice NEDs may be requested Upon termination or resignation, NEDs three-year term, subject to satisfactory to serve up to nine years, subject are not entitled to compensation performance and re-election at to rigorous review. and no fee is payable in respect of each AGM, with an expectation that the unexpired portion of the term The appointment may be terminated they would serve for at least six years, of appointment. The policy for the by either the Company or the NED, to provide a mix of independence, remuneration of NEDs is by giving appropriate notice. balance and continuity of experience. summarised below:
Purpose & Performance Element Link to Strategy Operation Maximum Metrics
Fees Attracts, retains and Fees are determined by There is no maximum Obligation to perform motivates high calibre the Board as a whole individual fee limit. The satisfactorily and NEDs to provide and set by reference to overall fee comprises a attend and contribute experience, capability those fees paid in similar basic fee plus payment for to meetings, assessed and governance in the companies, related to additional responsibilities via Board interest of shareholders. allocated responsibilities such as chairing effectiveness and subject to the Committees and for reviews. aggregate Directors’ fee interim additional duties. limits contained in the NEDs do not participate Company’s Articles of in the Group’s incentive Association. Out of pocket schemes. expenses including travel may be reimbursed by the Company in accordance with the Group’s expenses policy. NEDs are not entitled to compensation and no fee is payable in respect of the unexpired portion of the term of appointment.
Sourcing Shares for Share Plans
Shares used to settle vested share shares. The Company has established by dilution limits which comply with awards may include new issue an EBT to facilitate settling vested investor guidelines. shares, treasury or Employee Benefit share awards. The use of new issue Trust ‘EBT’ shares or market purchased shares or treasury shares is constrained
Annual Report on Remuneration
Section 1 - Total Reward for FY 2017 1.3 Shared Strategic Objectives 1.5 LTIP awards vested by reference 1.1 Directors’ Remuneration for Performance to performance over the three FY 2017 1.4 Personal Objectives Performance years to FY 2017 1.2 Annual Bonus Payable for FY 2017 Performance
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Directors’ Remuneration Report - Annual Report on Remuneration
1.1 Directors’ Remuneration for FY 2017 and Basis for Payments Under Incentive Plans (Audited)
The following tables show Directors’ emoluments for the current and prior year.
FY 2017 Salary & Fees Benefits (i) Annual Bonus Long Term Incentive Pension (iv) Total Director £'000 £'000 £'000 Plan (ii) £'000 £'000 £'000
Gary Elden 442.0 13.9 404.2 302.4 66.3 1,228.8
Alex Smith 333.3 18.5 305.7 232.6 50.0 940.1
Steve Quinn (V) ** (left 30/09/2017) 358.1 298.2 319.9 130.3 53.7 1,160.2
Justin Hughes (V) ** 330.0 71.6 222.9 130.3 109.7 864.5
Clay Brendish 140.0 - - - - 140.0
Anne Fahy 47.0 - - - - 47.0
Fiona MacLeod* (left 31/10/2017) 43.5 - - - - 43.5
Nadhim Zahawi* (left 31/10/2017) 37.1 - - - - 37.1
Denise Collis 47.0 - - - - 47.0
James Bilefield* (joined 01/10/2017) 8.1 - - - - 8.1
Barrie Brien* (joined 11/09/2017) 9.9 - - - - 9.9
Aggregate Emoluments 1,796.0 402.2 1,252.7 795.6 279.7 4,526.2
FY 2016 Salary & Fees Benefits (i) Annual Bonus Long Term Incentive Pension (iv) Total Director £'000 £'000 £'000 Plan (ii) £'000 £'000 £'000
Gary Elden 431.0 13.3 291.6 258.2 64.4 1,058.5
Alex Smith 325.0 16.2 219.9 198.6 48.7 808.4
Steve Quinn (V) (vi) ** 323.7 285.0 188.0 111.2 91.0 998.9
Justin Hughes (V) ** 323.7 111.3 200.3 111.2 48.1 794.6
Clay Brendish 140.0 - - - - 140.0
Anne Fahy 46.0 - - - - 46.0
Fiona MacLeod 40.0 - - - - 40.0
Nadhim Zahawi 40.0 - - - - 40.0
Tony Ward* (left 30/09/2016) 37.8 - - - - 37.8
Denise Collis* (joined 01/07/2016) 18.2 - - - - 18.2
Aggregate Emoluments 1,725.4 425.8 899.8 679.2 252.2 3,982.4
* Pro rated due to appointment or retirement in year ** Includes payments in local currency of US$ or HK$ hence actual Sterling amounts can differ YoY.
NOTES (iii) FY 2016 LTIP awards relate to those granted the table above, includes pre payments (i) Benefits comprise car allowance, medical in early FY 2014, vested in early FY 2017, based of £33.7k in respect of FY 2018. cover and life/income protection insurance, on performance assessed over FY 2014–2016, (v) Justin Hughes (previously based in Hong Kong) as well as payments to cover housing or other also including the value of any related and Steve Quinn (based in the USA), were related costs when transferred overseas. dividends accrued during the vesting period paid in local currency. Salaries have been Housing or other related costs were £276,073 on vested awards. The benefit value has been converted into pounds Sterling at average (2016: £268,315) for Steve Quinn and £69,324 calculated using a share price of 276.5p, exchange rates for FY 2017 of 9.99 (Hong (2016: £99,774) for Justin Hughes. being the share price on 30 November Kong Dollar) and 1.28 (US Dollar). (ii) FY 2017 LTIP awards relate to those granted 2016, the last dealing day of the year. (vii) After stepping down from the Board on in early FY 2015 and vesting in early FY 2018, (iv) Steve Quinn’s FY 2016 and Justin Hughes’ 30 September 2017, Steve Quinn will based on performance assessed over FY FY 2017 pension figures include amounts to continue to receive his salary, pension, 2015–2017, also including the value of any rectify underpayment of this supplement to housing allowance and other contractual related dividends accrued during the vesting them from prior years. For Justin Hughes, the benefits until 30 September 2018, unless he period on vested awards. The benefit value majority of this catch up occurred between finds alternative employment. For FY 2018, has been calculated using a share price of FY 2011 and FY 2013, shortly following him this will comprise £710k. Whilst this has been 343.50p, being the share price on 30 November moving to Hong Kong, as he transitioned to accrued in the financial statements, this is 2017, the last dealing day of the year. local contribution arrangements. However, not shown in the above table.
SThree plc Annual Report 2017 75 Overview Strategic Report Governance Financial Statements Shareholder Information £'000 £'000 £35.8 £28.0 £89.5 £67.5 £70.3 £62.5 £53.0 £47.1 £146.1 £110.1 Pay-out Pay-out £404.2 £305.7
% % 67.5% 70.0% 67.5% 67.5% 94.1% 68.0% 72.5% 94.1% 68.0% 72.5% 76.2% 76.5% Achievement Achievement
6.8% 7.0% 16.9% 16.9% 15.6% 78.6% 15.6% 78.6% Actual Actual £44.5m £44.5m performance performance Max Max 16.8% 84.0% 16.8% 84.0% £45.1m £45.1m 14.9% 74.0% 14.9% 74.0% Target Target £40.0m £40.0m 13.8% 68.0% 13.8% 68.0%
£36.9m £36.9m Threshold Threshold Max Max Target Target Threshold Threshold Actual performance against target Actual performance against target Below Below 10.0% 10.0% 25.0% 25.0% 29.25% 19.50% 16.25% 29.25% 19.50% 16.25% 100.0% 100.0% Weighting Weighting Weighting See Section 1.4 See Section 1.4 See Section 1.3 See Section 1.3 PBT Ratio Conversion Operating Ratio Cash Conversion N/A PBT Ratio Conversion Operating Ratio Cash Conversion N/A Targets are normally are on an adjusted basis. measured Targets paid in local Quinn (based in the USA) was Steve September 2017 when paid in pounds sterling he returned from Justin Hughes was to the UK. FY 2017 of 1.28 (US Dollars). for exchange rate into pounds sterling and his bonus amount has been converted at an average currency Personal Objectives Personal Objectives Directors’ Remuneration Report - Annual Report Report - on Remuneration Remuneration Directors’ 120% of salary) (maximum FY 2017 Performance for Annual Bonus Payable 1.2 FY 2017. for and result the measures/weighting against bonus opportunity (100%), of the maximum as a percentage the awards The tableshows below Gary Elden Measures Group Financial Target Regional Financial Target StrategicShared Objectives Smith Alex Measures Group Financial Target Regional Financial Target StrategicShared Objectives Key: scale against Actual achievement Notes to the bonus table 1. 2.
SThree plc Annual Report 2017 76 Overview Strategic Report Governance Financial Statements Shareholder Information £0.0 £'000 £'000 £21.3 £10.7 £57.7 £72.5 £75.3 £36.4 £32.2 £94.7 £45.6 £40.5 £55.9 Pay-out Pay-out £222.9 £319.9
% % 0.0% 62.5% 25.0% 67.5% 67.5% 94.1% 68.0% 72.5% 94.1% 68.0% 72.5% 65.2% 74.4% 100.0% Achievement Achievement
6.3% 2.5% 15.6% 78.6% 16.9% 15.6% 78.6% 16.9% Actual Actual £44.5m £44.5m £20.7m (£0.9m) performance performance Max Max 16.8% 84.0% 16.8% 84.0% £45.1m £45.1m £16.0m Breakeven 14.9% 74.0% 14.9% 74.0% Target Target £40.0m £40.0m 13.8% 68.0% 13.8% 68.0%
£36.9m £36.9m £13.6m (£0.5m) Threshold Threshold Max Max Target Target Threshold Threshold Actual performance against target Actual performance against target Below Below 10.00% 10.00% 23.40% 15.60% 13.00% 13.00% 25.00% 23.40% 15.60% 13.00% 13.00% 25.00% 100.0% 100.0% Weighting Weighting Weighting See Section 1.4 See Section 1.4 PBT Ratio Conversion Operating Ratio Cash Conversion See note 2 See Section 1.3 PBT Ratio Conversion Operating Ratio Cash Conversion See note 2 See Section 1.3 Targets are normally are on an adjusted basis. measured Targets paid in local Quinn (based in the USA) was Steve September 2017 when paid in pounds sterling he returned from Justin Hughes was to the UK. FY 2017 of 1.28 (US Dollars). for exchange rate into pounds sterling and his bonus amount has been converted at an average currency Directors’ Remuneration Report - Annual Report Report - on Remuneration Remuneration Directors’ 120% of salary) (maximum FY 2017 Performance for Annual Bonus Payable 1.2 FY 2017. for and result the measures/weighting against bonus opportunity (100%), of the maximum as a percentage the awards The tableshows below Justin Hughes Measures Group Financial Target Regional Financial Target StrategicShared Objectives Personal Objectives Quinn Steve Measures Group Financial Target Regional Financial Target StrategicShared Objectives Personal Objectives Key: scale against Actual achievement Notes to the bonus table 1. 2.
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1.3 Shared Strategic Objectives Performance
Shared objectives are assessed based on delivery of agreed medium term strategic targets, which are outlined as follows:
Overall result in judgement of Assessment of performance the Committee (as % of Strategic Measure by the Committee Maximum opportunity)
Customer & People engagement
Development and launch of Female Programme successfully launched and 100% Leadership development programme. gaining traction.
Improvement in Candidate Net NPS score of 44. Promoter Score (NPS) from FY 2016 base of 37 to a threshold, target and max of 37, 39.5 and 42.
Staff retention of the 12-24 months’ Staff churn decreased from 51% to 45.0%. sales cohort from FY 2016 base of 50% to 47%-45%.
End to end Customer Experience
A targeted programme of work in Key milestones achieved include a Customer 60% FY 2017 to address inefficiencies in Timesheet Application (‘CTA’) application to middle office and support functions. add navigational functionality for contractors whilst also increasing the efficiency of the payment processes. The Employed Contractor Model (‘ECM’) was successfully launched in Germany. A number of programme elements were rolled forward into 2018 due to competing priorities.
Permanent strategy
Pilots launched in more established Key pilot transition milestones completed, 35% geographies to deliver a separately with early sight of improvement in fee flow structured Permanent business from through (to be fully realised in 2018). Contract.
Customer Delivery Org Design
Development of the most effective Blueprint and toolkit created for delivery 75% organisational design for Contingency, models and job roles, with accompanying MSP and Key Account Customers. tailored reward schemes. Rolled out across each geography.
Total/Average pay out 67.5%
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1.4 Personal Objectives Performance
Personal targets - delivery against agreed objectives as follows:
Overall result in judgement of the Committee (as % of Director Personal Objective Assessment of performance by the Committee Maximum opportunity)
Gary Identification of target M&A Horizon scanning of opportunities, conduced 67.5% Elden opportunities. with effective engagement with the Board.
Progress on innovation. Successful implementation of innovations identified in the prior year. A strong pipeline of new innovation opportunities identified, enabled by a newly formed team and supporting infrastructures. Executive team alignment and performance management to Development and implementation of a new support succession plans. matrix organisational structure to balance geographic focus with enterprise wide commercial and operational excellence. Reshaped executive leadership team.
Alex To provide a lower cost, Announcement in November 2017 of the 70% Smith scalable and high quality proposed relocation of support functions support infrastructure for the away from London to Glasgow, delivering UK based Support Services. estimated annualised cost savings of circa £4m-£5m.
Further enhancement of the Good progress against Plan. interface between the Finance function and the regional business units.
Justin Lead the transition process in the New leadership team installed and operating 62.5% Hughes run up to the leadership handover well. Regional projects delivered to Plan. of day to day running of the region Permanent average fee improved. in June 2017, and provide appropriate oversight thereafter.
Effective transition of the Appointment as COO in September Programme Management Office 2017. Early traction achieved, with effective and delivery of Plan. contribution to the review of UK Support Services.
Steve Develop the interface between the Progress made, but not in full. 25.0% Quinn US and other parts of the business.
Develop leadership bench-strength Progress made, but not in full. and accelerate cultural change.
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1.5 LTIP awards vested by reference to performance over the three years to FY 2017 (Audited)
For the CEO and CFO awards were Earnings Per Share (‘EPS'): split equally between EPS and TSR. EPS - Compound annual growth Payout Actual Vesting For the COO and the CEO, USA, over three years ending FY 2017* Range performance level the awards also included a regional element, split equally three ways. RPI +6% - 14% - 19% pa 30% - 80% - 100% RPI +14.4% 81.5%
Total Shareholder Return (‘TSR'):
TSR - Rank of the Company Payout Actual Vesting compared to the peer group Range performance level
TSR performance between the 30% - 100% 29th out of 35 nil median and upper quartile
Regional Targets Payout Range (% Actual Vesting Region OP Target Range award of regional) Performance level The LTIP regional element was based on achieving regional Operating USA 23% - 36% CAGR 30% - 100% 15.7% CAGR 0% Profit (‘OP’) as follows: APAC & £4.3m - £6.2m OP 30% - 100% £1.8m OP 0% ME improvement improvement
The LTIP awards will therefore vest as follows:
Number of Number of Number of shares Dividend equivalent Total Executive Director shares granted shares vested lapsed on additional shares £'000*
Gary Elden 190,621 77,707 112,914 10,336 302.4
Alex Smith 146,631 59,774 86,857 7,951 232.6
Steve Quinn 123,170 33,473 89,697 4,453 130.3
Justin Hughes 123,170 33,473 89,697 4,453 130.3
* Based on a share price of 343.5p on 30 November 2017
Remuneration payable to Steve Quinn on cessation of employment
Steve Quinn stepped down from was agreed towards legal fees and LTIP awards will vest on the normal the Board on 30 September 2017 outplacement services in connection vesting date, following application of and, following a comprehensive with his departure. the original performance conditions, handover, which completed in early albeit awards will be reduced pro Steve Quinn received an annual FY 2018, ceased normal duties. He rata from the date of grant to 30 bonus payment in respect of the will continue to receive his salary, September 2018, as a proportion of financial year ending 30 November pension, housing allowance and the original three-year vesting period. 2017, as he was in active service for other contractual benefits until 30 There will be no requirement to hold the full financial year. The amount September 2018, unless he obtains a shares for two years post vesting. of any payment was subject to comparable position in which case the satisfaction of the relevant There are no other payments in the monthly payments from SThree performance conditions, as set connection with his cessation of will be reduced by the amount of at the start of the financial year. employment. that remuneration. In addition to Outstanding deferred bonus awards this, a contribution of up to £15,000 will vest on their original terms.
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Annual Report on Remuneration
Section 2 –Fixed and variable remuneration for FY 2018 2.1 Base Salary 2.3 2018 Annual Bonus 2.5 Non-Executive Directors (NEDs) 2.2 Benefits and Pension 2.4 Long Term Incentive Plan
2.1 Base salary, including agreed increase
The table below illustrates the Base Salary Increase Base Salary most recent base salary changes FY 2017 (from 1 Dec FY 2018 (effective for FY 2018). The average Executive Director £'000 2017) £'000 base salary changes awarded for Gary Elden, CEO 442.0 453.1 employees generally was 2.5-3.0%. Alex Smith, CFO 333.3 2.5% 341.6
Note: Justin Hughes was paid in Pounds Sterling Justin Hughes, COO 285.0 292.1 from September 2017, when he returned to the UK
2.2 Benefits and pension contribution
There are no changes to benefits. The Justin Hughes has been re-aligned to from Hong Kong to take up his role pension contribution equates to 15% our standard UK suite of benefits for as Group COO. of salary. The benefits package for this level, now that he has returned
2.3 2018 Annual bonus, including financial, strategic and personal measure
The maximum annual bonus will next two years. The bonus metrics and commercially sensitive and will be remain capped at 120% of base weightings for the FY 2018 annual disclosed retrospectively in next year’s salary. Any bonus above 100% of bonus are summarised in the table Directors’ Remuneration Report. salary will be deferred into shares below. The target ranges for each vesting in equal tranches over the metric are considered to be
Metric Weighting Measure Sub-weighting Link to strategy / notes
Group 65% Adjusted Profit Before Tax 29.25% These are considered by the Committee Financial Calculated as Gross Profit less to be the three most relevant financial KPIs Target administrative expenses, less for bonus purposes. interest before adjusting items.
Operating Profit Conversion Ratio 19.50% Adjusted Profit before Taxis the headline Calculated by taking the Operating measure of our Group profitability, shown on an Profit before exceptional and other adjusted basis, to measure underlying financial adjusting items, stated as a performance delivered by management. percentage of Gross profit.
Cash Conversion Ratio 16.25% Operating Profit Conversion Ratio Calculated as the cash generated and Cash Conversion Ratio indicate how from operations for the year after efficient the business is in terms of controlling deducting capex, stated as a costs and improving consultant productivity, percentage of operating profit turning profit into cash or collecting cash. before exceptional and other As such, they are key strategic measures adjusting items. and components of the Group’s bonus arrangements. Focusing on these measures also helps protect the Group in less favourable economic conditions.
Sliding scales will be set for each metric around a target level.
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2.3 2018 Annual bonus, including financial, strategic and personal measure (continued)
Metric Weighting Measure Sub-weighting Link to strategy / notes
Shared 25% Operations 6.25% Deliver financial benefits associated with Strategic the new CoE, establishing it, whilst minimising Objectives disruption to BAU activity.
Permanent Strategy 6.25% Growth in profitability of core business above certain thresholds. Hybrid Perm model established in new locations and supporting this.
People Engagement 6.25% Churn improvement % YoY.
Customer Engagement 6.25% Growth in the % of total Group Gross Profit derived from top clients.
Personal 10% 10% Delivery versus agreed objectives to Objectives produce value or efficiency gains.
TOTAL 100% 100%
2.4 Long Term Incentive Plan awards
The LTIP awards to be granted in early conditions will be based on EPS, TSR There will be a straightline sliding FY 2018, will be granted over shares and Strategic Metrics, each applied scale between points: worth 150% of salary. Awards will vest independently as shown in the table. on the third anniversary of grant, with LTIP Measures EPS TSR Strategic a further two year holding period 50% 30% 20% on vested shares. Performance Weighting
Earnings Per Share (‘EPS') (50% of the award): The Committee has increased the Adjusted EPS in 2020 Vesting of the award subject to EPS weighting from one third to 50% of Less than 30p 0% the LTIP award. This is to provide a stronger focus on the achievement 30p 25% of the stretching range of EPS targets 41p 100% that have been set for this award Between 30p and 41p Pro rata between 25% and 100% (representing growth of 5.3% to 16.8% CAGR from the FY 2017 EPS result).
Total Shareholder Return (‘TSR') (30% of the award): Measured over the three financial TSR ranking of the Company compared years to 30 November 2020 to the Comparator group Vesting of the award subject to TSR Below median 0%
Median 25%
Upper quartile rank or above 100%
Between median and upper quartile Pro rata between 25% and 100%
Note: The comparator group for FY 2018 LTIP awards will be: Adecco, Amadeus Fire, Brunel, Empresaria, Groupe Crit, Harvey Nash, Hays, Impellam, Kelly Services, Kforce, Korn Ferry, ManPower, Gattaca, Page Group, On Assignment, Randstad, Robert Half, Robert Walters and Staffline.
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2.4 Long Term Incentive Plan awards (continued)
Strategic (20% of the award): Compared to last year, the Committee (ii) Operating Profit Conversion ratio. The Committee considers that these has simplified the strategic element These are key focus areas of our will be important measures of of the LTIP award to provide two long term business strategy, relayed innovation and efficiency. measures, as follows: at the Group’s Capital Markets Day (i) New product GP (Innovation/ held in November 2017, which is why SoW/AUG model, targeting the Committee has decided to give growth by FY 2020; and them even greater prominence.
Vesting of the award subject GP from New Product Lines by FY 2020 Operating profit conversion ratio to Strategic element (50%) of strategic element in FY 2020 (50%)
0% Less than £11m Less than 17.3%
25% £11m 17.3%
100% £17m 21.1%
Pro rata between 25% and 100% Between £11m and £17m Between 17.3% and 21.1%
Shareholding Requirement The minimum shareholding shortfall against this threshold, no less (after selling sufficient shares to requirement is 200% of base salary than 50% of any deferred bonus or pay tax). and to the extent that there is any vested LTIP award must be retained
2.5 Non Executive Directors (‘NEDs’)
NED fees for FY 2018 are set out Non Executive Date Base Fee FY Chair/SID Fee Committee as follows Director Appointed £'000 £'000 Chair/SID Clay Brendish 01/05/2010 140.0 - Nomination
Anne Fahy 01/10/2015 45.0 7.0 Audit
Denise Collis 01/07/2016 45.0 7.0 Remuneration
Following a detailed review of fee levels, Barrie Brien 11/09/2017 45.0 - NED base fees were increased from £40,000 to £45,000 and Committee Chair fees from £6,000 James Bilefield 01/10/2017 45.0 7.0 SID to £7,000 pa, from 1 October 2017. A fee of £7,000 was also introduced for the role of Senior Independent Director (‘SID’). Total 320.0 21.0
Annual Report on Remuneration
Section 3 – Long Term Value Creation 3.1 Outstanding share awards 3.3 Total Shareholder Return 3.5 Relative Importance of Spend 3.2 Statement of Directors interest 3.4 Historical Levels of and Percentage on Pay in Shares Change in CEO Remuneration
3.1 Outstanding share awards
Awards outstanding (including those granted in the year), comprising LTIP, SAYE and deferred share awards (Audited) Executive Directors’ awards awards of shares (with no exercise earlier awards were granted as nil outstanding under the LTIP are set price, save for a notional £1 sum cost options, exercisable between out in the table below. Awards are payable on vesting for each three and ten years from grant. currently structured as conditional total award), although some
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3.1 Outstanding share awards (continued)
Shares Vested Remaining or lapsed Unexercised (including or unvested Market Dividend Shares) at 30 Nov Date of LTIP Price at Shares Face Vested Gain on 2017 (Incl Director/ Grant / Grant / Originally Value* (incl dividends) Vesting Exercise Dividend non LTIP Award Award Awarded £ Vested Date £ Shares) Gary Elden 04/02/2014 364.00p 165,535 602,547 93,371 04/02/2017 Unexercised 96,265
17/02/2015 324.00p 190,621 617,612 - 17/02/2018 - 190,621
27/01/2016 297.00p 217,677 646,501 - 27/01/2019 - 217,677
26/01/2017 312.00p 212,500 663,000 - 26/01/2020 - 212,500
Deferred bonus 24/02/2016 295.00p 15,770 46,522 8,564 24/02/2018 - 8,123
SAYE 20/09/2016 196.40p 9,164 23,116 - 1/12/2019 - 9,164
Alex Smith 11/02/2010 299.40p 117,935 353,097 120,832 11/02/2013 Unexercised 146,651
01/02/2011 371.30p 104,511 388,049 31,483 01/02/2014 Unexercised 36,633
04/02/2014 364.00p 127,335 463,499 71,824 04/02/2017 231,273 -
17/02/2015 324.00p 146,631 475,084 - 17/02/2018 - 146,631
27/01/2016 297.00p 164,141 487,499 - 27/01/2019 - 164,141
26/01/2017 312.00p 160,216 499,874 - 26/01/2020 - 160,216
Deferred bonus 24/02/2016 295.00p 12,131 35,786 6,588 24/02/2018 - 6,249
SAYE 20/09/2016 196.40p 9,164 23,116 - 01/12/2019 - 9,164
Steve Quinn 01/02/2011 371.30p 45,005 167,104 13,557 01/02/2014 Unexercised 15,775
01/02/2012 272.00p 52,516 142,844 11,531 01/02/2015 Unexercised 12,906
18/07/2012 261.00p 68,966 180,001 15,142 18/07/2015 Unexercised 16,947
04/02/2014 364.00p 106,961 389,338 40,222 04/02/2017 127,504 -
17/02/2015 324.00p 123,170 399,071 - 17/02/2018 - 123,170
27/01/2016** 297.00p 140,404 417,000 19,501 27/01/2019 - 120,903
26/01/2017** 312.00p 159,519 497,699 75,329 26/01/2020 - 84,190
Deferred bonus 24/02/2016 295.00p 8,379 24,718 4,550 24/02/2018 - 4,385
Justin Hughes 01/02/2011 371.30p 45,005 167,104 13,557 01/02/2014 Unexercised 15,775
08/02/2013 331.50p 114,027 378,000 66,347 08/02/2016 Unexercised 71,387
04/02/2014 364.00p 106,961 389,338 40,222 04/02/2017 Unexercised 41,469
17/02/2015 324.00p 123,170 399,071 - 17/02/2018 - 123,170
27/01/2016 297.00p 140,404 417,000 - 27/01/2019 - 140,404
26/01/2017 312.00p 159,519 497,699 - 26/01/2020 - 159,519
SAYE 20/09/2017 256.60p 7,014 17,998 - 01/12/2020 - 7,014
* For the SAYE, options were valued at a share price of 196.4p and 256.6p. Under the SAYE scheme options are issued on similar terms to all employees, being at a 20% discount to the market price and not subject to performance conditions. **For Steve Quinn this represents the pro rated number of shares following cessation of employment.
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3.1 Outstanding share awards (continued)
LTIP targets for outstanding awards are as follows: LTIP FY 2017-19 Measure EPS TSR Strategic Regional CEO & CFO 1/3 1/3 1/3 -
COO 1/4 1/4 1/4 1/4
Earnings Per Share (‘EPS'): Adjusted EPS in 2019 Vesting of the award subject to EPS Less than 25p 0%
25p 25%
32p 100%
Between 25p and 32p Pro rata between 25% and 100%
Total Shareholder Return (‘TSR'): TSR ranking of the Company compared Measured over the three financial to the Comparator group Vesting of the award subject to TSR years to 30 November 2019 Below median 0%
Median 25%
Upper quartile rank or above 100%
Between median and upper quartile Pro rata between 25% and 100%
Strategic targets apply to one third of the award, and are broken down as follows: Where sliding scales operate there Employee (one third): Relative gross profit (one third): will be 25% vesting at the threshold • The Employee metric will be split • The relative gross profit will be for payment: equally so that for one third, Staff compared to the same group Customer (one third): Engagement growth must be as used for the TSR metric with the • Revenue generation of between 3%-5% CAGR over three years. same medium-to-upper quartile £10m-£15m from new product For one third Sales Churn must be sliding scale. Gross profit will be lines by FY 2019. 37%-35% by 2019 (compared to compared based on percentage 38% in 2016). For the final one third gross profit growth over a three • Broad NPS metric showing Sales level 3-4 Diversity & Inclusion year performance period with improvement of 3%-5% pa CAGR gender representation targets adjustments made as necessary in years 2-3 from a baseline must improve over the same to ensure like-for-like comparison derived from the 1st year actual period. Level 3 representation to across the companies. Adding a NPS. This differs from the annual increase from 26% to 30% - 32% relative gross profit measure will bonus NPS metric which is based and Level 4 representation to provide a good balance to the on specific areas of the business increase from 10% to 15% - 20%. non-financial Strategic metrics, that require focus. by focusing on growing our gross profit at a faster rate than our competitors.
Regional Targets: apply to Directors OP Target Range Payout Range with regional responsibility for this Region FY 2019 (% of regional award) period, as follows: USA 36% - 46% CAGR 25% - 100% (pro rata)
APAC & ME £1.7m - £3.7m OP improvement 25% - 100% (pro rata)
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3.1 Outstanding share awards (continued)
LTIP FY 2016-18 Compound annual growth Vesting (% subject to EPS performance 50% (CEO, USA/COO one third) of the over three years ending FY 2018 condition pro rata settings between each) award is subject to EPS growth targets Less than RPI+6% 0% set out as follows: RPI+6% 30%
RPI+13% 80%
RPI+19% 100%
50% (regional CEO/COO one third) Rank of the Company's TSR compared Vesting (% subject to TSR of the award is subject to the to the peer group over three years performance condition pro rata Company’s TSR compared to a ending FY 2018 between each) comparator group, vesting as follows: TSR performance below the median 0%
Median 30%
Upper quartile or above 100%
Note: The comparator group comprises the following companies, being mid/large cap global listed recruiters or other business services/benchmark comparator companies, the vast majority of which have a high historical cyclicality correlation coefficient with SThree, being as follows: Adecco, Amadeus Fire, Bovis Homes Group, Brunel International, Carillion, Dice Holdings, Electrocomponents, Exova Group, Galliford Try, Grafton Group UTS, Groupe Crit, Harvey Nash Group, Hays, Hogg Robinson Group, Impellam Group, Insperity, Kelly Services, Kforce, Korn Ferry International, Manpower Group, Matchtech Group, Page Group, Morgan Advanced Material, On Assignment, Premier Farnell, Ranstad Holding, Regus, Restaurant Group, Robert Half International, Robert Walters, Savills, Shaftesbury, Staffline Group, Sythomer, Telecity Group, Trueblue, USG People, Wetherspoon (JD).
The LTIP regional element was based OP Target Range Payout Range on growing regional Operating Profit Region FY 2016 awards (% of regional award) (OP) as follows: USA 12% - 17% CAGR 30% - 100%
APAC & ME £2m - £3m OP improvement 30% - 100%
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3.2 Directors’ Interests in Shares (Audited)
Under the remuneration policy share capital of the Company as no Director had any other interest in Executive Directors must build and at the year end, are shown in the the share capital of the Company maintain a level of shares equivalent table, including any changes since or its subsidiaries, or exercised any to at least 200% of base salary. the start of the current year. There option during the year, other than Directors’ interests in the ordinary have been no changes since then, as already disclosed.
Ordinary Ordinary Shares Held Shareholding Shares Held at Ordinary Ordinary at 30 November Other share Shareholding Requirement 1 December Shares Shares 2017 (or date of awards Requirement (% of FY 2017 Director 2016 Acquired Disposed leaving) outstanding (% Salary) Salary) Gary Elden 2,801,934 1,494 124,025 2,679,403 725,186 200% 2082%
Alex Smith 279,090 39,469 3,097 315,462 662,395 200% 325%
Justin Hughes 555,199 141,025 567,205 129,019 551,724 200% 156%
Clay Brendish 38,300 - - 38,300 - - -
Anne Fahy 4,000 - - 4,000 - - -
Denise Collis - 5,000 - 5,000 - - -
Barrie Brien ------
James Bilefield ------
Steve Quinn 371,691 80,454 132,395 319,750 - - -
Fiona MacLeod 5,000 - - 5,000 - - -
Nadhim Zahawi 43,228 - - 43,228 - - -
Note: Other share awards outstanding, with the permission of the Board, Justin Hughes shares purchased by the Group, with shares comprise aggregate interests in all share based sold shares which temporarily reduced his holding to the value of £120,200 (2016: £257,100) and plans, which are shown in the tables earlier in below the 200% shareholding requirement and £85,900 (2016: £105,100), being allotted to the the report. These are not included in the has undertaken to retain all of his vested 2015 COO during the year. shareholding percentage calculation. In LTIP award to restore his shareholding back to * Based on share price as at 30 November accordance with shareholding policy, the required level. Ordinary shares acquired 2017 of 343.50p. As part of his repatriation back to the UK, include shares received in return for tracker
3.3 Total Shareholder Return (‘TSR’) Performance and the Pay of the CEO Over the Same Period
The graph to the right shows the otal Shareholder Ret rn Total Shareholder Return (‘TSR’) of the Company, compared to the FTSE 350 Support Services and FTSE Small Cap indices. These are considered the most illustrative comparators for investors as the Company has been a constituent currently or in the past.
S hree F S F S Small ap S pport Services
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3.3 Total Shareholder Return (‘TSR’) Performance and the Pay of the CEO Over the Same Period
The table below shows historical CEO Total Annual Bonus LTIP Awards levels of CEO total remuneration, Remuneration (% of Vesting (% of as well as annual bonus and LTIP Year CEO £'000 Maximum) Maximum)* vesting percentages over the same FY 2017 Gary Elden 1,228.9 76.2% 41.0% performance period as the TSR chart. FY 2016 Gary Elden 1,058.5 56.4% 50.0%
FY 2015 Gary Elden 1,284.9 92.8% 50.0%
FY 2014 Gary Elden 852.2 54.6% 18.5%
FY 2013 Gary Elden 752.8 44.3% 25.5%
FY 2012 Russell Clements 1,295.0 77.4% 88.0%
FY 2011 Russell Clements 1,264.9 56.0% 100%
FY 2010 Russell Clements 1,284.2 94.4% 100%
FY 2009 Russell Clements 616.1 41.7% 44.0%
3.4 Historical Levels of and Percentage Change in CEO Remuneration Versus All Group Employees
The table to the right shows the Percentage Change FY 2016 - FY 2017 percentage increase for each element of remuneration between Remuneration Element CEO Average for All Employees the current and previous financial Salary & Fees 2.6% 2.1% periods for the CEO, compared Other Benefits* 3.2% (7.3%) with all Group employees. Annual Bonus 38.6% 37.8%
* Includes salary supplement in lieu of pension
3.5 Relative Importance of Spend on Pay
The table to the right sets out the Item FY 2017 FY 2016 % Change change to the total employee wage Dividends £18.0m £18.0m 0% costs compared with the change in Remuneration paid to Employees dividends for FY 2017 compared to £187.4m £169.0m 10.9% FY 2016. All figures are taken from (incl Directors) the relevant sections of the Annual Report.
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Annual Report on Remuneration
Section 4 – Governance
4.1 The Committee and its Advisors 4.2 Statements of Voting at Last 4.3 Approval Year’s AGM
4.1 The Committee and its Advisors
The Committee’s Terms of Reference to comprise at least three as its independent remuneration (available at www.sthree.com) are independent NEDs. advisor in FY 2016, following a reviewed periodically to align as comprehensive review. Fees paid to The Chief Executive Officer and the closely as possible with the UK Korn Ferry for advice in relation to most senior HR representative attend Corporate Governance Code remuneration matters during the year meetings by invitation, except for (‘Code’) and ICSA best practice were £55,225, excluding VAT (FY 2016: matters related to their own guidelines. During the year the £41,500 paid to Deloitte and £45,141 remuneration. The Committee met Committee comprised only paid to Kepler, both excluding VAT). four times during the year and no independent NEDs, being Denise Korn Ferry are members of the member of the Committee has Collis, Chair, James Bilefield and Remuneration Consultants Group any personal financial interest (other Barrie Brien (both from Q4 2017), (‘RCG’) and comply with the RCG than as a shareholder) in the matters succeeding Nadhim Zahawi and Code of Conduct. The Committee decided. Fiona McLeod. The Committee are satisfied that their advice was therefore meets Code requirements The Committee appointed Korn Ferry and is objective and independent.
4.2 Statements of Voting at Last Year’s AGM
At the AGM held on 20 April 2017 the Resolution For % Against % Withheld following votes were cast in relation Directors’ Remuneration to the binding vote for the approval 92,981,242 99.66% 321,578 0.34% 106 Report of the Remuneration Policy and the Directors’ Remuneration advisory vote on the Annual Report 89,014,652 95.40% 4,288,168 4.60% 106 Policy on Remuneration. *Votes withheld are not counted in the % shown above
4.3 Approval
This report was approved by the Board of Directors on the date shown below and signed on its behalf by:
Denise Collis Chair of the Remuneration Committee 26 January 2018
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Corporate Governance Report
The following pages set out how the Group has applied the principles and provisions of the UK Corporate Governance Code, published by the Financial Reporting Council in April 2016 (the ‘Code’), as amended. The Group complied with all sections of the Code throughout the year and to the date of this report. Steve Hornbuckle Group Company Secretary
A. Leadership A.1 The Role of the Board for its other formal Committees The Board provides strategic in order to facilitate more and entrepreneurial leadership efficient working practices and and overall control of the these include an Executive led Group, setting a framework of Group Management Board prudent and effective controls (‘GMB’), the Investment to enable risks to be properly Committee, a Minority Interest assessed and managed. Its ‘Tracker Shares’ Steering primary role is to create value Committee, a Routine Business for stakeholders, to agree and Committee, a Disclosure approve the Group’s long-term Committee and CSR strategic objectives and to Committee, all of which develop robust corporate provide a clear framework governance and risk of delegated authorities. All management practices, Terms of Reference (available whilst ensuring that the at www.sthree.com) are necessary financial and other reviewed periodically and all resources are in place to Board Committees are aligned enable those objectives with the UK Corporate to be met. In undertaking Governance Code and this, the Board also reviews take into account ICSA best management performance practice guidelines. and sets the Company’s A.1.1 The Board is responsible to values and standards, with all shareholders for the proper Directors acting in what they management of the Group consider the best interests of and has identified key the Company, consistent with financial and operational their statutory duties. Certain areas that require regular powers are delegated to the reporting and which enable Remuneration Committee, the performance of senior Audit Committee and management to be Nomination Committee, reviewed and monitored. with details of the roles and These are set out in a responsibilities of these schedule of matters reserved Committees being set out to the Board, which is reviewed under the relevant sections. on a regular basis. The schedule In addition, the Board has outlines all matters requiring agreed Terms of Reference specific consent of the Board,
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A.1 The Role of the Board (continued) A. 2 Division of Responsibilities A.4 NEDs which include, inter-alia, the A.2.1 There is a clear division of A.4.1 On 1 November 2017 approval of Group strategy, responsibilities between the James Bilefield succeeded operating plans and annual Chairman and the Chief Fiona Macleod as the Senior budget, the Annual Report, Executive Officer, set out in Independent NED (‘SID’) and the Interim Report and trading writing and approved by was also appointed as Chair updates, major divestments the Board so that no one Designate. He is available and capital expenditure, individual has unfettered to shareholders to discuss meaningful acquisitions and powers of decision. strategy or governance issues disposals, the recommendation or should there be matters of dividends and the approval A. 3 The Chairman of concern that have not, of treasury, tax and risk The Chairman leads the or cannot, be addressed management policies. Board in the determination through normal channels. of its strategy and achieving The schedule therefore A.4.2 The Chairman normally its objectives and is responsible facilitates structured meet with the NEDs without for co-ordinating the business delegation, subject to certain the Executive Directors being of the Board, ensuring its financial limits and provides present, either before or after effectiveness, timing and a practical framework for each Board meeting and this setting its agenda, although executive management/ is formally noted, whilst the SID he has no involvement in the reporting, which seeks to holds, at least annually, day-to-day running of the achieve the objectives of discussions with the other NEDs Group’s business. maintaining effective financial without the Chairman being and operational controls, The Chairman allows present and also with the whilst allowing appropriate adequate debate by all, Executives, in order to appraise flexibility to manage the whilst facilitating an effective the Chairman’s performance. business. The current schedule contribution of the Non- A.4.3 Each Director ensures that of matters reserved to the Executive Directors (‘NEDs’), if he/she has any concerns Board is available on the overseeing Board induction which cannot be resolved, Company’s website at and evaluation, ensuring about the Company or a www.sthree.com. constructive relations between proposed action, such each Executive and NEDs A.1.2 The Directors of the Company, concerns are recorded in and that the Directors receive including biographies, are set the minutes, whilst upon accurate, timely and clear out in the Board of Directors resignation, NEDs may provide information to undertake section of this Annual Report, a written statement to the Board affairs and facilitate with further details of Board Chairman for circulation to effective communication Committee membership being the Board, of any concerns. with shareholders. The Chief set out later in this report. The Executive Officer has direct number of, and attendance charge of the Group on a at, Board and Committee day-to-day basis and overall meetings during the year, is responsibility to the Board for also shown in a table later in the operational and financial this report. All meetings were performance of the Group, well attended and, outside under a job description these, there was frequent which clearly sets out these contact between Directors responsibilities. on a range of matters. A.3.1 As stated below, on Appropriate insurance cover A.1.3 appointment, the Chairman was in place during the year met the independence criteria and continues as at the date set out under the Code, in of this report, in respect of terms of having no previous possible legal action against connection with the Company. the Directors.
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Corporate Governance Report
B. Effectiveness B. 1 Composition of the Board that the balance reflects the diversity, including gender. The Board comprises a changing needs of the Group’s Succession planning aspects balance of Executive and business and is refreshed if are regularly reviewed by the NEDs who bring a wide range necessary. Most importantly Committee, in order to ensure of skills, experience and of all, Board members feel an orderly progression/ knowledge to its deliberations. a strong cultural affinity with refreshment of senior The NEDs fulfil a vital role in the Group, engaging fully as management/Board members corporate accountability and a committed team and in a and maintain an appropriate have a particular responsibility wide variety of activities with balance of skills, experience to ensure that the strategies our employees around the and diversity both within the proposed by the Executive globe, whether it be an Company and on the Board. Directors are fully discussed office visit, or presentation by The Chairman’s Governance and critically examined, not management. The Nomination Overview and Strategy section only in the best long term Committee report gives further (earlier in this Annual Report), interests of shareholders, information on activity in contain further information but to also take account this regard, including recent on succession and diversity of the interests of customers, changes in Board composition, aspects. succession planning and employees and other B.2.1/2 Under the direction of the diversity. stakeholders. The NEDs are all Nomination Committee, each experienced and influential B.1.1 Excluding the Chairman, formal selection process is individuals and through their the other NEDs have been conducted, using external mix of skills and business determined by the Board advisors, consisting of a series experience, they contribute throughout the year as being of interview stages, involving significantly to the effective independent in character Directors and other Senior functioning of the Board and and judgment with no Executives, against the its Committees. This ensures relationships or circumstances background of a specific that matters are fully debated which are likely to affect, role definition and objective and that no one individual or or could appear to affect, criteria. Details of the small group dominates the each Director’s judgment. composition, work and decision making process. responsibilities of this Committee B.1.2 The Board has a Non-Executive Directors have a wide range are set out under the relevant Chairman, who is not classed of experience of various section later in this report. as independent because of industry sectors relevant to the his position but who met the All Directors are subject to Group’s business and each B.2.3 independence criteria set out annual re-election, although member brings independent in the Code on appointment. NEDs are typically expected judgement to bear in the At least half the Board, to serve for an initial term of interests of the Company on comprise of NEDs determined three years, which, in normal issues of strategy, performance, by the Board to be independent, circumstances and subject resources and standards of as set out in the Code. to satisfactory performance/ conduct. The Board is of re-election at each AGM, sufficient size to match business would be extended for a needs and members have an B.2 Appointment to the Board further three years. NEDs appropriate and varied range Appointments to the Board may be requested to serve of skills, vital to the success of are the responsibility of the for a third term (i.e. nine years the Group. The composition full Board, upon the in total) subject to rigorous and performance of the recommendation of the review at the relevant time Board and each Committee Nomination Committee and and their agreement. The is periodically evaluated to after appropriate external Company’s Articles of ensure the appropriate consultation, bearing in mind Association also contain balance of skills, expected the Board’s existing balance provisions regarding the time commitment, knowledge of skills and experience, the removal, appointment, election/ and experience and the specific role needs identified, re-election of Directors. Directors can thereby ensure and with due regard for
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B. Effectiveness (continued) B. 3 Commitment know senior management, Committees and senior B.3.1 For Board vacancies, the as well as promoting awareness individuals/NEDs and Nomination Committee of responsibilities. Executive appropriately advises the approves a detailed job Directors are encouraged to Board, on governance matters. accept external appointments specification, which sets out B.5.1 Directors are entitled to obtain in order to broaden their the indicative time commitment independent professional experience, although currently expected. Potential Director advice,at the Company’s no such positions are held. candidates are required to expense, on the performance disclose any significant B.4.1 Induction arrangements are of their duties as Directors, outside commitments prior tailored for new appointments although no such advice to appointment and must to ensure that these are was sought during the year. undertake that they have appropriate to each role, All Committees are serviced sufficient time to meet these, dependent on previous by the Group Company in addition to Company experience. Directors and Secretary’s team and are business, particularly in other Senior Executives are appropriately resourced. the event of a crisis. invited to attend analysts’ B.3.2 Upon joining, each NED briefing and capital markets B.5.2 Directors have access to the receives a formal appointment presentations and major advice and services of the letter which identifies their shareholders may, upon Group Company Secretary, responsibilities and expected appropriate request, who is responsible to the minimum time commitment, meet new NEDs. Board for ensuring that its which is typically two to three procedures are complied As part of the annual Board days a month. These letters are B.4.2 with and to assist in arranging evaluation process, the available for inspection at the any additional information Chairman assesses any training Company’s registered office. as required. The appointment and development needs in and removal of the Group respect of individual Directors, B. 4 Development Company Secretary is a including on environmental, matter reserved for the At scheduled Board and social and governance Board as a whole and the Committee meetings, (‘ESG’) matters. Subject areas last appointment was made Directors receive detailed identified to be addressed in October 2006. reports/presentations from during the last full evaluation management on the exercise included risk B. 6 Board Evaluation performance of the Group management, brand, regional B.6.1/2 As recommended by the or specific areas of focus/ and sectoral knowledge. responsibility. NEDs may visit Code, a Board/Committee the Group’s sales or other evaluation was undertaken B. 5 Information & Support offices in order to join senior during the period under review. Board and Committee meeting management from different This took the form of one on papers are circulated well in geographic areas to discuss one meetings with the advance of the relevant current initiatives. Directors are Chairman to elicit feedback meeting and where a Director aware of their responsibilities on what was working well, or is unable to attend he/she is and briefed on relevant not, with suggestions of things provided with a copy of the regulatory, legal, governance for the Board to stop or start papers and has the opportunity or accounting matters doing. The outputs of this to comment on the matters periodically, as required. exercise are being under discussion. Minutes of Directors also attend external implemented, building upon all Committee meetings are seminars on areas of relevance the lessons gained in prior circulated to all the Directors, to their role in order to facilitate evaluations. irrespective of Committee their professional development. membership. The Group As part of this process, the These measures help to ensure Company Secretary helps Chairman also discusses the that the Board continues to to ensure information flows individual performance of develop its knowledge of the between the Board/ Directors, in consultation with Group’s business and get to other Directors. The last external
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B. Effectiveness (continued) evaluation was completed in NEDs without the Chairman and commitment of Directors, FY 2015. The evaluation process being present and also with as well as an explanation of is considered to be both formal the Executives, in order to the reason why each retiring and rigorous and has led to appraise the Chairman’s Director should be re-elected, the conclusion that, overall and performance. are all provided in the Notice individually, the performance of AGM. The Company also of the Board, each Committee B.7 Re-election complies fully with the Code and each Director was and is B.7.1 Although the Company’s in respect of its AGM voting effective and that Directors Articles of Association permit arrangements and disclosure demonstrate full commitment Directors to remain in office of the voting outcome via in their respective roles. for up to three years before the London Stock Exchange. Annual General Meeting See also the Chairman’s (‘AGM’) re-election, all Governance Overview Directors now retire and section earlier in the seek re-election annually, as Annual Report. recommended by the Code. B.6.3 The SID holds annual B.7.2 Reference to performance discussions with the other
C. Accountability C. 1 Financial & Business Reporting business. This provides a fair, C.1.3 A ‘going concern’ statement The Strategy section, balanced and understandable is set out towards the end of Chairman’s, CEO’s and other assessment of the Group’s the Corporate Governance officers’ sections of this Annual position and prospects, in Report section. Report, taken together, accordance with the Code. provide information relating C. 2 Risk Management, Internal C.1.1 The Directors’ responsibility to the Group’s activities, its Control & viability for preparing the financial business and strategy and statements and the statement C.2.1/2 The Board’s statement principal risks and uncertainties by the auditors about their regarding its review of the faced by the business, including reporting responsibilities are effectiveness of the Group’s analysis using financial and set out in the Directors’ Report risk management, internal other KPIs where necessary. and Independent Auditors’ control systems and viability These, together with the Report, respectively. statement is set out later in Directors’ Remuneration this report. Report, Directors’, Corporate C.1.2 An explanation of the Governance, CSR, Audit business model and the C. 3 Audit Committee & Auditors Committee and Nomination strategy for delivering the Details of the composition, Committee Reports provide objectives of the Group is work and responsibilities of this an overview of the Group, included as part of the Committee are set out in the including environmental Strategy section, Chairman’s, Audit Committee Report. and employee matters and CEO’s and other officers’ give an indication of future sections of this Annual Report. developments of the Group’s
D. Remuneration D. 1 Level & Components implementation of this Code the Remuneration Committee The Directors’ Remuneration principle and provisions. are set out under the relevant Report sets out in full, the section later in this report and D.2 Procedure policies and practices, which in the Directors’ Remuneration Details of the composition, demonstrate the Company’s report. work and responsibilities of
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E. Relations with Shareholders E. 1 Dialogue with Shareholders Buy Side Institutions E. 2 Constructive Use of AGM Communications with sset anager The Board views the harities shareholders are given a AGM as an opportunity to edge F nd high priority, as a part of a anager communicate with private Ins rance F nd comprehensive investor anager and institutional investors relations programme. Inv r st anager and welcomes participation, t al F nd The Company produces anager although typically very few ension F nd Annual and Interim Reports anager shareholders attend. rivate lient for shareholders and the Stoc ro er F Alternative options, such as Company’s website contains holding a virtual AGM may Location of FM up-to-date information on be considered in the future. the Group’s activities, investor ondon din rgh E.2.1 The Company proposes a presentations and published Other financial results. Shareholders ew or separate resolution on each oston substantially separate issue can also subscribe for e-mail Geneva and the proxy appointment alerts of important aris or announcements made. forms for each resolution There are regular meetings provide shareholders with the with institutional shareholders option to direct their proxy to and analysts, whilst ensuring vote either for or against any E.1.1. The Chairman, SID and other that price sensitive information resolution or to withhold NEDS are available to discuss is released at the same time their vote. governance or strategy issues, to all, in accordance with the should there be matters of E.2.2 The Company’s registrars requirements of the UK Listing concern that have not, or ensure that all valid proxy Authority. Presentations are cannot, be addressed through appointments received made after the Company the Executive Directors. During for the AGM are properly has published its full and half the year, both the Chairman recorded and counted and yearly results and there was and SID were available to a schedule of proxy votes also dialogue on specific converse with shareholders, cast is made available to issues, which have included with the Chairman hosting shareholders attending the the LLP, tracker share model, a governance lunch. meeting. There is also full LTIP, remuneration matters and Appropriate feedback disclosure of the voting recruitment of Chairman. In was provided to the Board. outcome via the London between trading updates, Stock Exchange and on the there is continued dialogue E.1.2. Views of analysts, brokers and Company’s website as soon with the investor community institutional investors are as practicable after the AGM. by meeting key investor sought on a non-attributed representatives, holding basis via periodic sentiment E.2.3 All Board members are investor roadshows and surveys and these, as well as encouraged to attend the participating in conferences. regular analyst and broker AGM and the Chairs of the Feedback from meetings held publications, are circulated Audit, Nomination and between senior management to all Directors to ensure Remuneration Committees and institutional shareholders that they develop a full are available to answer is reported to the Board. understanding of the views questions. Meetings with debt providers, of major shareholders. Any E.2.4 The Notice of AGM is posted principally the Company’s issues or concerns are raised at least twenty working banks, also take place and discussed at the Board, days prior to the date of the periodically. The pie charts and Directors routinely meeting and the Company’s on the following page show receive regular reports on website contains copies of a breakdown of meetings by share price, trading activity all Notices issued. institution type and location of and sector updates. fund manager during the year.
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Board & Committee Composition & Attendance (In accordance with A.1.2 of the Code)
As stated, the Board has established Remuneration various Committees, each with clearly Audit Nomination Committee defined terms of reference, procedures Board (10 Committee Committee (4 meetings) and powers. All Terms of Reference Directors meetings) (4 meetings) (4 meetings) Directors (available at www.sthree.com) are Clay Brendish 9 - 4 - reviewed regularly and are aligned Gary Elden 10 3 3 4 closely with the UK Corporate Governance Code and take into Alex Smith 10 4 - 2 account ICSA best practice Steve Quinn1 7 - - - guidelines. Justin Hughes 10 - - - In addition to the scheduled Board 4 meetings held during the year, the Fiona Macleod 8 3 3 2 Board met for a separate strategy Denise Collis 10 - 4 4 session and for the AGM. The number Anne Fahy 10 4 4 - of Board/ Committee meetings held and attendance at each is set out Nadhim Zahawi4 6 1 2 1 in the table to the right. James Bilefield3 2 1 1 1 Where Directors were unable to attend Barrie Brien2 3 1 2 2 meetings due to other unavoidable commitments, full Board packs were distributed and separate discussions 1 Steve Quinn retired from the Board on the 3 James Bilefield joined the Board, Audit, 30 September 2017. Remuneration and Nomination Committees were held with the Chairman on all 2 Barrie Brien joined the Board, Audit, on 1 October 2017, succeeding Fiona matters of relevance. Further details Remuneration and Nomination Committees Macleod as SID from 1 November 2017. of each of the Board Committees on 11 September 2017. 4 Fiona Macleod and Nadhim Zahawi retired are contained in the Remuneration, from the Board on the 31 October 2017. Audit and Nomination Committee sections of this Annual Report.
Effectiveness of the Group's Risk Management and Internal Control Systems (In accordance with C.2.1 & C.2.2 of the Code)
Risk management and Internal Executive Directors and senior reasonable accuracy, the materiality Control Systems and Identification management are responsible for the of financial and non financial risks of Principal Risks,Including implementation and maintenance of and the relationship between the Environmental, Social & Governance the underlying control systems, subject cost or benefit, resulting from such (‘ESG') Matters. to such review. The Audit Committee systems. In order to manage the works closely with the Board in this business effectively, the Board assesses The Board has overall responsibility area and, on behalf of the Board, actual results compared with for monitoring the effectiveness of has identified no significant failings budgeted and forecast performance, the Group’s risk management and or weaknesses from its review. The as well as against other KPIs, on an internal control systems in order to Group’s Internal Audit function also ongoing basis. The process includes safeguard shareholders’ investments assists to facilitate the review process. risks and opportunities to enhance and the Group’s assets and, at the value arising from ESG matters least annually, to carry out a Processes are designed to manage, where relevant. The process is robust assessment of risks and the rather than eliminate, the risk of failure consistent with the FRC’s latest effectiveness of associated controls. to achieve the Group’s objectives guidance on Internal Control and This monitoring and review process and accordingly provide reasonable, has been in operation for the period includes assessing all material risks not absolute, assurance against under review and up to the date and controls, including financial, material misstatement or loss. The Board of approval of this Annual Report. operational and compliance controls. considers, in assessing what constitutes
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Assessment of Risk and Enterprise Risk Management (‘ERM') Framework ERM Framework specific risk or compliance and governance issues such as the The Board, supported by the Audit targets, where relevant; Company’s leadership, executive Committee, has overall responsibility • Job descriptions include reference pay, audits, internal controls and for risk management activities and to risk responsibilities. shareholder rights). implementing policies to ensure that all risks are evaluated, measured In light of the increasing FRC focus on Investment Association (‘IA') and kept under review by way of risk monitoring, reporting and viability Guidelines on Responsible appropriate KPIs and this forms the and in order to enable the Board Investment Disclosures In respect of the Company’s basis for the Group’s ERM framework. to satisfy itself on the robustness of the Group’s internal control and risk compliance with the IA guidelines on Under this framework, all Executive, evaluation/monitoring processes, responsible investment disclosures, Regional and Country Directors, key the Board has previously engaged the Board confirms the following, in support functions and other relevant external risk specialists to review its relation to its responsibilities, policies and parties take ownership of their related processes, including risk appetite procedures, with appropriate KPIs risks, creating specific sub-Group risk setting and reporting. detailed within the Strategy section: registers, with risks being categorised • As part of its ERM procedures, according to probability and impact As part of this work, a detailed analysis the Board takes into account any and measured according to strictly of risk appetite was undertaken, using material ESG matters. Adherence defined criteria, as set out under the key operational parameters to set to these procedures and disclosure Board approved risk management and measure the Group’s risk profile. of relevant issues is monitored by policy. More significant risks are This work is revisited periodically the Internal Audit function and distilled to form the Group’s key risk at Audit/Board meetings as well as also reviewed by external risk register, which is regularly reviewed an annual risk workshop, to monitor specialists, as part of the overall by the Board. both the actual and forecast position risk management framework. against these parameters. ERM Processes • The Board has received adequate As part of these processes, regular As a result, the Board is able to sign off information to make this assessment strategy and risk workshops are held, with confidence that these processes by way of its ERM procedures bringing together Executive Directors, are robust, as required by the Code. and, where necessary, has taken Regional MDs, Country Directors ERM Arrangements account of ESG matters in training and key function heads, with ERM The Group’s ERM arrangements have and bonus structures. specialists in attendance, been designed to meet, as closely as • The Board has ensured that the underpinned as follows: possible, the appropriate BSI standard Company has in place effective • Senior Directors own localised risk (BS 31000) on risk management systems for managing and mitigating registers, with regular presentations processes. principal risks. Where relevant, made to the Board which include these incorporate performance Consequently, the Group has progress on risk mitigation; management systems and continued to reap the benefits of its • Board or Audit Committee appropriate remuneration incentives. enhanced ERM framework through meetings may include presentations improved strategic and individual • There are no ESG-related risks or by MDs/Country Directors, etc., region/sector focus on key risk areas, opportunities that may significantly on their approach to business risk with greater clarity on risk ownership, affect the Company’s short and management and tracking and the identification of opportunities long term value or the future of improvement areas: as well as threats, whilst also facilitating of the business. • A Board approved risk better monitoring of progress,mitigation management policy and Going Concern Statement measures and ensuring appropriate The Group’s business activities, procedures are in place, forward looking assessment, including, together with the factors likely to communicated Group-wide; where relevant, ESG matters (for affect its future development, • Group risk appetite statements example environmental impacts, performance, its financial position, reviewed, with strategic and social issues such as how the Group cash flows, liquidity position and localised measures being agreed, manages relationships with its e borrowing facilities are described in monitored via appropriate KPIs, mployees, suppliers, customers and the Strategic section of this Annual with bonus also being subject to the communities in which it operates,
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Report. In addition, the notes to the combination) to evaluate the Steve Hornbuckle financial statements include details potential impact on the Group’s Group Company Secretary of the Group’s treasury activities, liquidity and debt requirements 26 January 2018 funding arrangements and objectives, under various scenarios. These policies and procedures for managing assumptions included sales various risks, including liquidity, capital headcount, gross profit yield per management and credit risks. sales consultant, infrastructure and support costs. The Directors have considered the Group’s forecasts, including taking In making this statement, it is account of reasonably possible recognised that not all future events changes in trading performance, or conditions can be predicted, and risks and uncertainties and the future assessments are subject to a Group’s available banking facilities. level of uncertainty that increases Based on this review, and after making with time. Future outcomes cannot, enquiries, the Directors have a therefore, be guaranteed or predicted reasonable expectation that the with certainty, particularly within the Group and the Company have recruitment sector, where there is adequate resources to continue limited forward visibility. in operational existence for the This assessment was made taking into foreseeable future. account the Company and Group’s For this reason, the Directors continue current position and prospects, its to adopt a going concern basis in strategy, the agreed risk appetite and preparing this Annual Report. the principal risks and mitigation (as detailed in the Strategic section of Viability Statement this Annual Report), all of which The Board has assessed the viability could change and impact the of the Company and the Group over future performance of the a five year period to 30 November Company and the Group. 2022, taking account of the Group’s current financial position and the Corporate and Environmental potential impact of the principal risks Responsibility and mitigation documented in the The Board recognises that the Group Strategic section of this Annual has a responsibility to act ethically in Report. The five year horizon is relation to the physical and social consistent with presentations to the environment in which it operates, investor community at the CMD and and that failure to do so could other investor events. Based on this adversely impact on the Group’s assessment and the various other long and short term value as a result matters also considered and of financial penalty and/or loss of reviewed by the Board during the stakeholder support. It takes such year, the Board has a reasonable responsibilities seriously, paying due expectation that the Company and regard to international and local the Group will be able to continue in laws in all its dealings. operation and to meet liabilities as Further details are disclosed in they fall due over the period to the CSR Report. 30 November 2022.
In making this assessment, the Board has reviewed a five-year financial Share Capital and Directors' forecast, taking into account the Powers to Issue or Buy Back Shares Group’s strategy, cash flows, dividend Information on the Company’s share cover, debt facilities and other key capital and Directors’ powers to issue financial metrics over the period. or buy back shares is set out within The key assumptions in the forecast the Directors’ Report. were flexed (individually and in
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Audit Committee Report
As Chair of the Audit Committee, I am pleased to present, on behalf of the Board, its Audit Committee Report, prepared in accordance with the UK Corporate Governance Code (the ‘Code’).
FY 2017 was another busy year for Internal Audit (‘IA’) plays an integral the Committee. In the early part of role in the Group’s governance and the year, we completed an external provides regular updates to the audit tender, which resulted in a Committee, with tracking of remedial Anne Fahy recommendation to re-appoint action in the case of any control Audit Committee Chair PricewaterhouseCoopers LLP failures. At the start of each year (‘PwC’) as auditor to the Company. an annual IA plan is presented This followed a comprehensive tender for the Committee to agree, after performance, which it does annually, process which began in October appropriate review and challenge. in line with best practice. From this 2016 and concluded in February The Committee was pleased to see review, the Committee has concluded 2017, led by myself, as Audit Committee and supported the implementation that it is functioning effectively, with Chair. As part of this process, the of a more robust action tracking only minor areas identified for Company originally invited six audit system which not only freed valuable enhancement. firms to tender, with a shortlist of IA resource but also improved Having reviewed the content of two firms eventually giving final transparency, accountability, quality the Annual Report, the Committee presentations to a panel consisting and timeliness of action close outs. considers that, taken as a whole, it of the Audit Committee Chair, CFO, is fair, balanced and understandable Group Company Secretary and Significant focus is placed on key and provides the information selected members of the Company’s accounting judgements and necessary for shareholders to assess finance management team. In the estimates, which underpin the the Company and the Group’s end, PwC were selected based on financial statements, namely: performance, business model a combination of factors, including • Measurement of restructuring and strategy. team continuity, track record of costs and classification of improving service and delivery, exceptional items; Information on the Committee responsiveness and communication, • Impairment of investment meetings held and attended by energy and cultural fit, lack of carrying value (Company only); members is set out in the table in transition disruption, as well as the Corporate Governance Report. • Capitalisation of internal costs fee competitiveness. spent on system development; We also welcomed two new members • Accrued revenue cut off; and Committee Composition to the Committee, James Bilefield • Tracker shares The Committee consists of Anne and Barrie Brien, both of whom bring Fahy (Chair), Barrie Brien and significant financial and commercial All of these were considered in the James Bilefield. The Group CEO, CFO, experience. I would also like to thank light of the latest FRC guidance. Group Company Secretary, External Fiona McLeod and Nadhim Zahawi During the course of the year, the Auditors, Internal Audit and Finance for their significant contribution to Committee also considered, amongst function heads also attend meetings the Committee during their tenure. other matters, project implementation, by invitation. The Committee continues to support technical accounting matters and the Board in further embedding the their appropriate disclosure, treasury Committee Membership, including Code provisions on risk, control and matters, as well as fraud and Recent and Relevant Financial, viability, whilst further strengthening whistleblowing, whilst also supporting Audit or Sector Experience the internal control environment the Board in its discussions on key Anne Fahy is a Chartered Accountant by ensuring the independence, risks, tax planning and policy. As with and has held senior financial positions, effectiveness and quality of both last year, it also took the opportunity most recently at BP, whilst Barrie Brien internal and external audit processes, to review and update its terms of is also a Chartered Accountant and as well as of the Committee itself. reference and evaluated its both he and James Bilefield are
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Audit Committee Report
Audit Committee
Committee Membership, including Recent and Relevant Financial, Audit or Sector Experience (continued) degree educated and have held is considered to have appropriate were reviewed and updated during senior management positions, which sector experience. the year. Duties principally comprise include financial responsibility; the as follows: The Committee’s Terms of Reference Committee, taken as a whole,
The Committee’s Principal Responsibilities • To monitor the integrity of and risk management systems and • Reviewing arrangements by the consolidated financial reporting, including supporting the which the Groups’ employees statements of the Group and Board in overseeing risk may raise concerns about possible any announcements relating management activity, advising improprieties in financial reporting to financial performance; on risk appetite and assessing or other such matters and ensuring • To review significant financial material breaches of risk controls; appropriate follow up; reporting issues and judgements; • To monitor and review the • Assessing procedures for detecting • Where requested by the Board, to effectiveness of the Group’s fraud or preventing bribery; and advise whether, taken as a whole, IA function; • Where requested by the Board, the Annual Report is fair, balanced • To agree the external auditors advising on proposed strategic and understandable and provides engagement terms, scope, fees, transactions, including conducting the information necessary for non-audit services, to monitor due diligence appraisals and shareholders to assess the and review the external auditor’s focusing on risk aspects. Group’s performance, business effectiveness and associated model and strategy; independence and recommend The Committee carries out an annual assessment of its effectiveness, • To review the Group’s internal re-appointment to the Board in order to consider whether any financial controls, internal control and shareholders; improvements are needed.
Risk Management, Internal Controls, Key Focus Areas and Viability The Committee supports the Board management and internal control misstatement risks are identified and in its overall responsibility for risk systems in order to safeguard targeted in terms of the overall audit management activities and shareholders’ investments and the strategy and that audit resources implementing policies to ensure Group’s assets and, at least annually, and the efforts of the engagement that all risks are evaluated, measured carrying out a robust assessment team are correctly allocated. This and kept under review by way of of risks and the effectiveness of helps to ensure the effective planning appropriate KPIs, as part of the associated controls on behalf and performance of the external Group’s ERM framework. of the Board. and internal audit teams, focused on risk, and has resulted in a continued Presentations from senior management No significant failings or weaknesses improvement in processes and across the business are provided were identified by the Committee controls over recent years. to the Board to further develop from this review. information, understanding and A key focus area for the Committee, The Committee works closely with debate on risks. again, this year was reviewing the the CFO, Group Company Secretary, viability statement, to enable Board This activity includes monitoring of IA team and external auditors to sign off. the effectiveness of the Group’s risk ensure that any potential material
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Audit Committee Report
External Auditors
Responsibilities in Relation to External Auditors During the year the Committee and terms of engagement by • Updated the policy on the carried out each of the following: shareholders; engagement of the external • In accordance with EU Audit • Reviewed and monitored the auditors and supply of non-audit Regulation guidance on audit external auditor’s independence services in light of regulatory tendering, the Committee and objectivity and the effectiveness changes. This new policy sets out completed a formal audit tender, of the audit process, taking into prohibited and permitted services, including a recommendation consideration relevant UK a non-audit services fee cap and for the appointment of PwC as professional and regulatory certain pre approval thresholds. external auditors, with subsequent requirements; approval of their remuneration
Appointment, Objectivity and Independence Following the conclusion of the independence is maintained. The external auditors are required to formal audit tender in early FY 2017, The Committee also considers rotate audit partners responsible for both the Committee and the external independence taking into the Group audit every five years and auditors have safeguards in place consideration relevant UK professional the current lead audit partner was to ensure that objectivity and and regulatory requirements. appointed in 2014.
Performance and Tendering During the year, the Committee techniques, as well as competitive choice of external auditors, per se, EU reviewed performance and fees and fee structure have all contributed rules now prevent certain ‘prohibited’ met with the external auditors, PwC to PwC’s satisfactory performance services from being carried out in regularly, without management and independence. The Committee addition to auditing activities. Any present. Prior to the recent tender, therefore considers that the existing such activities must first cease, before PwC originally replaced BDO as relationship has worked well and a firm can be considered for audit auditor in 2000 and became auditors remains satisfied with PwC’s tender. Accordingly, the external of the public company in 2005. The effectiveness. auditor ceased such services in FY Committee considered that factors 2016 in order to be considered for the Whilst there are no contractual such as regular audit partner rotation, tender completed in early FY 2017. obligations restricting the Group’s adoption of enhanced audit
Framework used by the Committee to Assess Effectiveness of the External Audit Process The Committee has adopted a process, communications by the The effectiveness of management in broad framework to review the auditor with the Committee, how the external audit process is assessed effectiveness of the Group’s external the auditors support the work of the principally in relation to the timely audit process and audit quality Committee, how the audit contributes identification and resolution of areas which includes: assessment of insights and adds value, a review of of accounting judgement, the quality the audit partner and team with independence and objectivity of and timeliness of papers analysing particular focus on the lead audit the audit firm and the quality of the those judgements, management’s engagement partner, planning formal audit report to shareholders. approach to the support of and scope of the audit, including a independent audit and the booking Feedback is provided to both the dedicated audit planning afternoon, of any audit adjustments arising external auditors and management with identification of particular areas as well as the timely provision of by the Committee and its attendees, of audit risk, the planned approach documents for review by the based on the above, with any and execution of the audit, auditors and the Committee. actions reviewed by the Committee. management of an effective audit
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External Auditors
Policy on Non-Audit Work The Committee sets clear guidelines independent safeguards established, meeting APB Ethical Standards and on non-audit work, which is only in order to consider whether to use FRC guidance, to clearly set out: permitted where it does not impair other firms and continues to use • which types of non-audit work independence or objectivity and other firms to provide general tax are prohibited; where the Committee believes that advice or for other projects. • the types of work for which external it is in the Group’s best interests to Following the introduction of EU auditors can be engaged without make use of built up knowledge or Ethical Standards for Auditors in 2016, Audit Chair referral, provided such experience. Such work has included the Committee reviewed its policy services fall below £25,000 and are services required due to legislation on non-audit work and has updated not specifically prohibited; and and assurance work or other specialist it. As such, the policy aligns with • for which types of work Audit services. The Committee continuously regulations to prohibit a number Committee Chair referral is needed, monitors the quality and volume of of non-audit services, whilst also i.e. which are above £25,000. this work, fees incurred, as well as
Fees paid to External Auditors for Non-Audit Work Audit fees for the year decreased fees justified. Non-audit fees have procedures and India subsidiary by 3% YoY. The Committee reviews decreased compared to prior years, liquidation. The fees are set out in all non-audit work against policy with this year’s fees primarily related the notes to the financial statements. to ensure it is appropriate and the to the half year agreed upon
Significant Accounting Judgements and Estimates in the Financial Statements and Matters Considered in Relation Thereto Significant areas considered by As the classification of these Estimates applied in the valuation the Committee in relation to the FY restructuring costs is judgemental and of the restructuring provisions are 2017 Annual Report and financial the valuation of the provision requires considered to be appropriate by statements and how these were estimation, these matters were the Audit Committee and in line with addressed, include the following: discussed with senior members of IFRS requirements. Both external and the finance team. Ahead of the year internal audit teams have performed Measurement of restructuring costs end,the Committee reviewed a draft detailed verification procedures on and classification as exceptional paper proposed by management, the restructuring costs and related items – certain costs were incurred The Committee challenged the criteria provisions and the external auditors during the year, which were and timing of these costs to ensure have reported their findings to the separately presented as exceptional such classification and presentation Committee. items and excluded from the Group’s was balanced and consistent with alternative earnings measure on the internal policy and external guidance. face of the Income Statement. Impairment of investment carrying A final paper incorporating agreed values (Company only) – the parent The exceptional items recognised changes and other refinements company holds investments in UK in the year related to restructuring was subsequently reviewed and and overseas subsidiaries, which costs, as following a review of its UK- approved by the Audit Committee. had a total carrying value of £206.8m based global support structure, the Management’s paper set out the at year end. Annually, a review is Group made a decision to relocate size, incidence and nature of each performed to assess whether there is support functions away from its specific type of restructuring costs an indication that these investments London headquarters to a new incurred and considered that an are impaired. If any such indication facility located in Glasgow. The appropriate disclosure as exceptional exists, the recoverable amount of the principal restructuring costs classified items provides a better understanding investment is estimated, being the as exceptional were redundancy of the Group’s underlying results and higher of an entity’s ‘fair value, less costs and professional advisor fees is in accordance with the Group’s costs of disposal’ and its ‘value in use’. for external consultants engaged to accounting policy set out in Note 1 Ahead of the year end, the support the planning and execution of the Financial Statements. of central support service restructure. Committee reviewed a draft paper
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Significant Accounting Judgements and Estimates in the Financial Statements and Matters Considered in Relation Thereto (continued) proposed by management and Determining whether the project is significant. recommended a review of key development costs satisfy the IAS 38 The value of unsubmitted timesheets judgements on the future recognition criteria is judgemental. for each individual contractor is performance of the investments and Business cases, including an assessment system generated and estimation is key estimates, including the discount of the project against recognition principally in respect to the number rates, all of which drive the valuation criteria, are required for all significant of hours worked. The number of hours of the recoverable amount. A final projects and approved by the worked is based on the contractual paper incorporating further refined Group’s Strategic Development hours and working days for each trading assumptions and amended Committee. A key judgement relates contractor and adjusted for expected growth and discount rates was to defining and quantifying the benefits holidays or other events that could subsequently reviewed and of a project. The Audit Committee reduce the revenue. approved by the Audit Committee. monitors the benefits of completed projects compared to those set out However, the revenue is adjusted to Management’s paper set out the in the original business cases via an reflect actual data from contractor investments that were deemed to annual review which is performed timesheets received two-three weeks be impaired and the key estimates by Internal Audit. This provides an after the year-end and where driving the valuation models, with indicator not only of the rigour of timesheets are not submitted. the resulting impairment test giving the benefits defined/quantified in an £88.1m impairment of the parent Any difference compared to the original business cases but also the company’s investment in subsidiaries. actual time worked by the contractor areas for further improvement or The majority of this impairment charge would result in the amount payable to consideration in open projects’ was due to a decrease in the value the contractor and accrued revenue business cases. The external auditors of the UK business and was primarily receivable from the client being have reported to the Committee determined using a discounted cash adjusted in the next financial year. on the results of their testing in this flow (‘value in use’) model. area. The judgements and estimates Each year management quantifies Given the downturn in the trading which have been applied are also the difference between actual performance of the UK business, as discussed with management and amounts billed and accrued revenue highlighted in the CEO Report, an considered to be appropriate by and costs. This covers the month after impairment charge was anticipated the Committee and continue to year end when a large proportion by the Committee. Estimates applied be in line with IFRS requirements. of timesheets are submitted. An in the valuation of the investments adjustment is made for this. Any residual differences following this and judgements made in applying Revenue Recognition - contract a provision are considered to be revenue is recognised when the are quantified and are not material. appropriate by the Committee and supply of professional services has External and internal auditors have in line with IFRS requirements. The been rendered. This includes an verified procedures around revenue external audit teams and senior assessment of professional services recognition and reported their findings. members of the finance team have received by the client for services The estimation method applied, and performed detailed verification provided by contractors between the assumptions underlying these procedures on the valuations of the the date of the last received are considered appropriate by the investments and the external auditors timesheet and the year end. Committee and continue to be have also reported their findings to in line with IFRS requirements. the Committee. Revenue is therefore accrued for contractors where no timesheet has been received, but the individual is Tracker Shares – the tracker share Capitalisation of internal costs spent ‘live’ on the Group’s systems, or where arrangements are complex in nature on system development – where the a customer has not yet approved a and therefore challenging to disclose criteria in IAS 38 Intangible Assets is submitted timesheet. Such accruals in a way that is understandable to met, the Group capitalises eligible are removed after three months if the reader whilst continuing to system project development costs in no timesheet is received or customer highlight the judgements involved. Intangible assets. These include the approval obtained. The amount of cost of directly attributable internal In light of this, each year, the contractor revenue that is accrued time spent by certain employees. Committee re-examines the key rather than billed at each period end areas of judgement in order to be
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Significant Accounting Judgements and Estimates in the Financial Statements and Matters Considered in Relation Thereto (continued) satisfied that these are clearly shares, and sought reconfirmation Committee also reviewed the disclosed. There are significant from the Board that it is the ongoing disclosure of this judgement in Note 1 accounting differences (generally intention to settle the scheme in this and considered it to be appropriate. with respect to measurement) way. This policy is disclosed within the Material Misstatements – when comparing the treatment of financial statements. management confirmed to the an equity settled and a cash settled When tracker shares are settled Committee that they were not share based payment scheme. using treasury shares the accounting aware of any material misstatements, The tracker share scheme gives requires judgement. The Companies management override or fraud and the Group the choice to settle in Act is not explicit on how the reissue of the external auditors confirmed that either SThree plc shares or cash treasury shares should be accounted they had found no evidence of such and therefore the treatment of this for in this scenario. The Committee during the course of their work. scheme in the financial statements had previously reviewed legal advice as equity settled is judgemental. After reviewing reports from obtained by management in this area Given the material quantum of management and following its which confirms the appropriateness amounts involved, the Committee discussions with the external auditors, of the treatment adopted within the focused on this significant judgement. the Committee is satisfied that the financial statements, as disclosed In order to satisfy itself that treatment financial statements appropriately further in the notes to the financial of the scheme as equity settled is address critical judgements and statements. There have been no appropriate, the Committee verified key estimates, both in respect of the changes to suggest this legal advice the practice to date has been to amounts reported and the disclosures. is superseded in any way. The Audit settle tracker shares using SThree plc
Internal Audit (‘IA’) IA plays an integral role in the which is approved in advance by present to the Committee to report Group’s governance and risk the Committee. back on progress against agreed IA management processes and actions and other risks in their area For FY 2017, the programme was provides independent assurance of responsibility. During the year the focused on addressing both financial to the Committee on compliance Committee received presentations and overall risk management with its policies and procedures. The from and held discussions with the objectives across the Group, with function carries out a wide variety of CIO on cyber security and GDPR reviews carried out, findings reported audits including operational as well (General Data Protection Regulation) to the Committee, recommendations as ad hoc and project based readiness, the US Operations Director tracked and their close out monitored. reviews and fraud investigation. on the broad compliance agenda No significant weaknesses were for that region, focusing particularly The Committee oversees and identified from the risk management on ECM (Employment Contractor monitors the work of IA, which carries or internal control reviews undertaken Model) and the Energy sector, as out risk based reviews of key controls by IA during the reporting period and well as with the Commercial Head and processes throughout the Group throughout the financial year. The IA on procurement opportunities. on a rolling cycle, including resources, team has continued to enhance the scope and alignment with principal risk management framework and The Committee ensures that the risks and effectiveness of the function. work with managers across the globe Group’s IA function remains at an to further develop and embed the appropriate size and skill mix for the The Head of IA has direct access to risk framework and methodology business and firmly believes that this the Committee, and meets regularly at a local level, whilst also ensuring function remains effective and with both the Committee and its that the IA plan is closely aligned to continues to add significant value. Chair without management present risk. Senior management regularly to consider the IA work programme,
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Fraud The Committee reviews the procedures for the prevention and detection of fraud in the Group.
Suspected cases of fraud must be reported to senior management and are investigated by IA, with the outcome of any investigation reported to the Committee. During the year in question, IA investigated two frauds, with appropriate disciplinary action taken.
Anti-Bribery and Corruption and Business Ethics The Group maintains a zero tolerance approach against corruption. It has an established anti-bribery and corruption policy, which includes guidance on the giving and receiving of gifts and hospitality. This policy applies throughout the Group. A Gifts and Hospitality Register is maintained to ensure transparency.
The Group also has a Code of Conduct which sets out the standards of behaviour by which all employees are bound. This is based on the Group’s commitment to acting professionally, fairly and with integrity.
Whistleblowing Hotline The Group has in place a dedicated independent whistleblowing hotline, as part of the arrangements set up and is monitored by the Committee, so that employees are able to report any matters of concern, where this does not conflict with local laws or customs (see the Company Information and Corporate Advisors section for details). During the year, the opportunity was taken to refresh communication of the whistleblowing procedures and related policy. All issues raised via the hotline during the year, were fully investigated by IA and appropriate action taken.
Committee Evaluation Consistent with the decision to defer our external Board evaluation,the Committee conducted an internal evaluation process which included feedback from management, external auditors, IA, as well as Committee members. Overall, the evaluation endorsed continuing to have key managers’ deep dive on particular topics and some other minor improvements.
Anne Fahy Audit Committee Chair
26 January 2018
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I am pleased to present to you the Nomination Committee report. The report provides underlying detail on the Committee and its activities during the year. Information on the Committee meetings held and attended by members is set out in the table in the Corporate Governance Report, whilst details of the evaluation undertaken Clay Brendish of the Board and its Committees is set out Nomination Committee Chair. in the Chairman’s Governance Overview.
Committee Composition The Committee consists of Clay Brendish (Chairman), James Bilefield, Barrie Brien, Denise Collis and Anne Fahy and thus complies with the requirement to have a majority of independent Non Executive Directors (NEDs).
Summary of Terms of Reference The Committee’s terms of reference Board, make recommendations development of and adequate are, broadly, to regularly review the with regard to any changes and pipeline into the Executive team structure, size and composition to review and prepare relevant job for succession and bench strength (including the skills, knowledge, descriptions for new appointees, purposes. experience and diversity) of the as well as ensuring the continuing
Use of External Search Consultants The Committee engages external as was the case for the most recent Remuneration and Nomination search consultants with respect to external appointments. James Bilefield Committees. James was also both Executive and Non Executive and Barrie Brien, who were appointed appointed as Chair designate/SID, appointments and considers as NEDs in Q4 2017, being also in line with our succession plans. applicants from all backgrounds, appointed to each of the Audit,
Succession Planning & Diversity Succession planning and development ahead to ensure appropriate Chair succession planning for Board or initiatives are ongoing throughout succession at the next AGM. other Senior Executive roles, reviewing the Group to ensure that there is an leadership, experience and skills needs In this regard, the Committee first appropriate management pipeline at and bearing in mind the existing conducted an evaluation of the all levels. YSC Consulting were engaged balance of skills, knowledge, balance of skills, knowledge and during the year to assist with this. experience and diversity already on experience on the Board and, in the the Board, to ensure appropriateness. During FY 2017, the Committee’s work light of this, prepared a description of In terms of gender and ethnic diversity, was focused on ensuring the continuing the roles and capabilities required for we consider that the Board is well development of and adequate each particular appointment. Following balanced. See also the Chairman’s pipeline into the Executive team, an extensive interview process, the Governance Overview section in including the impact of Steve Quinn’s successful appointees were selected this Annual Report. departure, as well as refreshing the from candidates proposed only by Non Executive team, following the the external search consultants planned departure of Nadhim Zahawi and chosen entirely on merit. Clay Brendish (after nine years tenure) and Fiona Nomination Committee Chair The Committee also considers future McLeod (as SID), whilst also looking 26 January 2018
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Opinion In our opinion, SThree plc’s Group statements, as applied in 30 November 2017; the Consolidated financial statements and Company accordance with the provisions income statement and Consolidated financial statements (the ‘financial of the Companies Act 2006; and statement of comprehensive income, statements’): • have been prepared in accordance the Consolidated and Company • give a true and fair view of the state with the requirements of the statements of cash flow, and the of the Group’s and of the Company’s Companies Act 2006 and, as regards Consolidated and Company affairs as at 30 November 2017 the Group financial statements, statements of changes in equity for and of the Group’s profit and the Article 4 of the IAS Regulation. the year then ended; and the notes Group’s and the Company’s cash to the financial statements, which We have audited the financial flows for the year then ended; include a description of the significant statements, included within the accounting policies. • have been properly prepared in Annual Report, which comprise: accordance with IFRSs as adopted the Consolidated and Company Our opinion is consistent with our by the European Union and, as statements of financial position as at reporting to the Audit Committee. regards the Company’s financial
Basis for opinion We conducted our audit in Independence To the best of our knowledge and accordance with International We remained independent of the belief, we declare that non-audit Standards on Auditing (UK) (“ISAs (UK)”) Group in accordance with the ethical services prohibited by the FRC’s and applicable law. Our responsibilities requirements that are relevant to our Ethical Standard were not provided under ISAs (UK) are further described audit of the financial statements in to the Group or the Company. in the Auditors’ responsibilities for the the UK, which includes the FRC’s Other than those disclosed in the audit of the financial statements Ethical Standard, as applicable to Audit Committee’s Report, we have section of our report. We believe that listed public interest entities, and provided no non-audit services to the audit evidence we have obtained we have fulfilled our other ethical the Group or the Company in the is sufficient and appropriate to responsibilities in accordance period from 1 December 2016 to provide a basis for our opinion. with these requirements. 30 November 2017.
Our audit approach Overview
Materiality • Overall Group materiality: £2.2 million (2016: £1.9 • Overall Company materiality: £2.0 million million), based on 5% of profit before tax and (2016: £1.9 million), based on 1% of net assets, exceptional items (2016: profit before tax). capped at the level of Group materiality.
Audit Scope • The Group has its centralised support functions in the • The whole Group was audited by the UK audit UK which include the Group’s accounting function. team at the centralised support function
Key Audit • Capitalisation of internal costs spent on system • Measurement of restructuring costs and Matters development (Group); classification as exceptional items (Group); and • Accrued income cut off (Group); • Impairment of investment carrying values • Tracker share accounting judgement (Group); (Company).
The scope of our audit As part of designing our audit, we example in respect of significant We gained an understanding of determined materiality and assessed accounting estimates that involved the legal and regulatory framework the risks of material misstatement in making assumptions and considering applicable to the Group and the the financial statements. In particular, future events that are inherently industries in which it operates, and we looked at where the directors uncertain. considered the risk of acts by the made subjective judgements, for Group which were contrary to
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The scope of our audit (continued) applicable laws and regulations, procedures that focused on the risk irregularities, including fraud. As in all including fraud. We designed audit of non-compliance related to global of our audits we also addressed the procedures to respond to the risk, employment laws and interpretations, risk of management override of recognising that the risk of not and indirect taxes. Our tests included internal controls, including testing detecting a material misstatement inspecting correspondence with journals and evaluating whether due to fraud is higher than the risk regulators, discussions with legal there was evidence of bias by the of not detecting one resulting from counsel (internal and external), directors that represented a risk of error, as fraud may involve deliberate involving employment tax specialists material misstatement due to fraud. concealment by, for example, forgery and testing particular classes of or intentional misrepresentations, or transactions. We did not identify any through collusion. We designed audit key audit matters relating to
Key Audit Matters Key audit matters are those matters auditors, including those which had context of our audit of the financial that, in the auditors’ professional the greatest effect on: the overall statements as a whole, and in forming judgement, were of most significance audit strategy; the allocation of our opinion thereon, and we do not in the audit of the financial statements resources in the audit; and directing provide a separate opinion on these of the current period and include the the efforts of the engagement team. matters. This is not a complete list of most significant assessed risks of These matters, and any comments we all risks identified by our audit. material misstatement (whether or make on the results of our procedures not due to fraud) identified by the thereon, were addressed in the
Key audit matter How we addressed the key audit matter
Capitalisation of internal costs spent on system development
We focused on this area Internal costs capitalised during the year were £2.4m (2016: £1.9m). For costs being because of the significant level capitalised on system development projects we tested a sample of projects to verify of judgement involved by the that these satisfied the recognition criteria in IAS 38 Intangible assets. For the samples directors in determining whether selected, we: internal costs incurred in respect • Obtained approved business cases setting out the budgeted costs and of system development satisfy anticipated benefits. the requirements of the financial • Met with the project managers and obtained satisfactory explanations for the reporting framework (International assumptions made, supporting the judgement that benefits would exceed the Accounting Standard 38 expected cost. Intangible assets) to be capitalised, including that they • To verify the reliability of estimated benefits we also examined internal analyses of are separable from the other the outcome of historical projects. We considered whether the planned benefits assets of the business and were estimated reliably compared to what was now being realised. will provide future economic We concluded that costs were being capitalised in accordance with IAS 38. benefits for the Group. In addition to the above procedures, we also tested a sample of internal costs to Refer to Intangible assets (Note supporting payroll records and verified the allocation of employee costs to the 11 of the financial statements), correct projects. Where projects were completed, we tested their functionality to Significant accounting evaluate whether they were fit for purpose and operating as intended in the original judgements and estimates (Note business case. 1 of the financial statements) and We noted that there were a number of smaller projects being capitalised as intangible the Audit Committee Report. assets which collectively amounted to £1.1m (2016: £0.9m) of capitalised costs during the year. In the case of these projects we verified for a sample that these are Group functionality changes or enhancements to existing systems rather than updates or maintenance. We had no exceptions in respect of these tests.
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Key audit matter How we addressed the key audit matter
Accrued income cut off
The Group’s accounting process means that there is a For contract revenue, including accrued income, we: material amount of accrued rather than billed Contractor • Tested the automated controls in the system to see revenue at each period end (‘Accrued income’). At year that it calculated accrued income correctly based end the accrued income was £65.0m (2016: £51.7m). on contracted hours and billing rates. This estimate is a system-computed amount calculated • Tested the automated and manual controls supporting by using standard Contractor rates and estimated hours the accuracy of rates and hours inputs into the system. for placed Contractors. The amount is reviewed by management and adjusted for post year end data • Compared a sample of the timesheets submitted and/ when Contractor timesheets are received. Contractor or billings raised subsequent to the year end to the revenues represented 71% of the Group’s gross profit revenue that had been accrued in relation to them during the year. and found them to be consistent. • We examined the historical accuracy of making this We focused on this area due to the material quantum estimate by checking the prior year’s accrual and of accrued income and the potential for variances to that the post year end variances were not material. arise when compared to actual post year end data. • We verified that accrued revenue was not older than Refer to Trade and other receivables (Note 14 of the three months in age in accordance with Group policy, financial statements), Significant accounting judgements and examined the ageing profile of the balance in and estimates (Note 1 of the financial statements) general, concluding that management were following and the Audit Committee Report. their policies in this area. Group From these procedures we concluded that the estimate was materially appropriate.
Tracker share accounting judgement
Tracker shares can be repurchased from holders with We verified that SThree’s current policy for repurchasing either cash or SThree plc shares at the Company’s tracker shares continues to be through the issue of new discretion. The Company’s policy is to settle these using SThree plc shares or use of treasury shares. We tested SThree plc shares. Therefore this share based payment repurchases of tracker shares during the year and scheme continues to be accounted for as equity settled. verified that these were settled with SThree plc shares There are significant accounting differences between in accordance with this policy. an equity settled and a cash settled scheme. Therefore, We confirmed with management and the Board that it with regard to the material quantum of amounts remains their intention to settle in equity, and that this involved, we focused on this significant judgement. policy is disclosed within the financial statements. Details of the tracker share scheme are set out in the Chief Financial Officer’s report and in the Accounting policies (Note 1 of the financial statements). Refer also to Share Capital (Note 20(b) of the financial statements), Significant accounting judgements and estimates (Note 1 of the financial statements) and the Audit Committee Report.
Group
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Key audit matter How we addressed the key audit matter
Measurement of restructuring costs and classification as exceptional items
On 1 November 2017 the Group announced the We considered whether the exceptional items recorded restructuring of its support function. Management has were non-recurring in nature and recognised and recognised £6.7m of costs related to this restructuring presented in accordance with the Group’s disclosed and classified these as exceptional items in the Income accounting policy. We agreed that due to the material Statement in accordance with the Group’s accounting quantum of the costs and their strategic and non-recurring policy in Note 1 of the financial statements. nature it was appropriate to classify the costs directly associated with the restructuring programme as Refer to Administrative expenses – Exceptional items exceptional items. (Note 3 of the financial statements), Significant accounting judgements and estimates (Note 1 of the financial In relation to the specific types of cost incurred: statements), the Chief Financial Officer’s report and • We assessed the different types of costs incurred and the Audit Committee Report. the point an obligation was established to ensure these The key elements of the exceptional costs for 2017 were recognised in the correct accounting period. include: • For redundancy costs, we selected a sample of • Redundancy costs of £5.7m; and impacted employees and verified that management’s computation of the amount payable to them reflected • Professional advisor fees of £1.0m. the communication of the methodology announced Determining whether costs should be classified as during the employee consultation and agreed details exceptional items requires judgement. We therefore such as start dates and notice periods to supporting focused on this area. Judgement is also required to audit evidence including employment contracts or determine which costs should be included as employee consultation meeting minutes. exceptional and provided for at the year end • For professional advisory fees we agreed these to and the estimation of these amounts. relevant agreements and invoices, making sure the We also focused on this area to ensure that disclosures services provided are incurred and restructuring-related. made in the Annual Report in respect of an Alternative We found no exceptions from our testing. Performance Measure (Profit before tax and exceptional items) are clearly explained, reconciled to statutory In our review of the Annual Report we focused on measures, and are not given undue prominence. disclosures of Exceptional costs in Note 3 and Alternative Performance Measures and that these were explained Group and presented alongside statutory measures. We also considered the outcome of the Audit Committee’s own review which concluded the Annual Report is fair, balanced, and understandable.
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Key audit matter How we addressed the key audit matter
Impairment of investment carrying values
The Company holds investments in a number of UK and We obtained management’s impairment test results overseas subsidiaries with a total carrying amount of with supporting computations and: £206.8m at 30 November 2017. The UK has experienced • Verified that inputs to the model were accurate continued challenging economic conditions over the including estimates of future profitability and that these past two years indicating an increased impairment risk. were in line with the approved budget or adjustments We focused on this area due to the material quantum made were appropriate. of the investment balance in the UK and because • Checked the mathematical accuracy of the model. management estimates are required in performing From these procedures we concluded the model inputs an impairment test. and calculation methodology were accurate. Management’s impairment test resulted in an £88.1m The inputs which required management judgement and impairment of the Company’s investment in subsidiaries. our procedures are set out below: The majority of the impairment was determined using a discount cash flow (‘value in use’) model. • Growth assumptions – we considered the Group’s own budgets and forecasts and the history of achieving Sensitivity disclosures have been included within the these. We also sought independent market evidence financial statements. such as views on the outlook published by the Group’s Refer to Other investments (Note 13 of the financial peers or other economic data. We concluded that statements), Significant accounting judgements and the growth assumptions were reasonable. estimates (Note 1 of the financial statements), the • Discount rate and long term growth rate– the pre-tax Chief Financial Officer’s report and the Audit discount rate of 11.6% and long term growth rate of 2% Committee Report. are within the range that we independently estimated based on market data and analysis of comparable Company companies. We also considered alternative analyses of potential impairment prepared by management including a fair value less cost to sell model and that the higher of the two models was taken into account when determining the impairment charge.
We reviewed management’s disclosed sensitivities and performed our own sensitivity analyses. We also considered that the disclosure made in the financial statements re- garding the assumptions and the sensitivities drew appropriate attention to the more significant areas of estimation.
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How we tailored the audit scope for processing the transactions of the and the nature, timing and extent of We tailored the scope of our audit to whole Group. Our audit was therefore our audit procedures on the individual ensure that we performed enough conducted from the UK at centralised financial statement line items and work to be able to give an opinion support function and addressed the disclosures and in evaluating the on the financial statements as a whole of the Group’s profit. effect of misstatements, both whole, taking into account the individually and in aggregate on Materiality structure of the Group and the the financial statements as a whole. The scope of our audit was influenced Company, the accounting Based on our professional judgement, by our application of materiality. We processes and controls, and the we determined materiality for the set certain quantitative thresholds industry in which they operate. financial statements as a whole for materiality. These, together with as follows: The Group has a centralised support qualitative considerations,helped us function in the UK which is responsible to determine the scope of our audit
Group financial statements Company financial statements
Overall materiality £2.2 million (2016: £1.9 million). £2.0 million (2016: £1.9 million)
How we determined it 5% of profit before tax and 1% of net assets, capped at the level exceptional items (2016: 5% of of Group materiality. profit before tax).
Rationale for benchmark applied We believe that profit before tax, We believe that net assets is the adjusted for exceptional items, primary measure used by the provides us with a consistent year on shareholders in assessing the year basis for determining materiality position of the non-trading holding by eliminating the non-recurring Company, and is an accepted disproportionate impact of these auditing benchmark. items. In 2016 there were no exceptional items and therefore profit before tax was used.
We agreed with the Audit Committee million (Company audit) (2016: £0.2 Going concern that we would report to them million) as well as misstatements In accordance with ISAs (UK) misstatements identified during below those amounts that, in our we report as follows: our audit above £0.2 million (Group view, warranted reporting for audit) (2016: £0.2 million) and £0.2 qualitative reasons.
Reporting obligation Outcome
We are required to report if we have anything material to add or draw attention We have nothing material to add to in respect of the directors’ statement in the financial statements about whether or to draw attention to. However, the directors considered it appropriate to adopt the going concern basis of because not all future events or accounting in preparing the financial statements and the directors’ identification conditions can be predicted, this of any material uncertainties to the Group’s and the Company’s ability to statement is not a guarantee as to continue as a going concern over a period of at least twelve months from the Group’s and Company’s ability the date of approval of the financial statements. to continue as a going concern.
We are required to report if the directors’ statement relating to Going Concern We have nothing to report. in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
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Independent auditors’ report to the members of SThree plc
Report on the audit of the financial statements
Reporting on other information The other information comprises all of information is materially inconsistent With respect to the Strategic Report, the information in the Annual Report with the financial statements or our Directors’ Report and Corporate other than the financial statements knowledge obtained in the audit, or Governance Report, we also and our auditors’ report thereon. otherwise appears to be materially considered whether the disclosures The directors are responsible for the misstated. If we identify an apparent required by the UK Companies Act other information. Our opinion on the material inconsistency or material 2006 have been included. financial statements does not cover misstatement, we are required to Based on the responsibilities described the other information and, accordingly, perform procedures to conclude above and our work undertaken in we do not express an audit opinion whether there is a material the course of the audit, the Companies or, except to the extent otherwise misstatement of the financial Act 2006, (CA06), ISAs (UK) and the explicitly stated in this report, any statements or a material misstatement Listing Rules of the Financial Conduct form of assurance thereon. of the other information. If, based on Authority (FCA) require us also to the work we have performed, we In connection with our audit of report certain opinions and matters conclude that there is a material the financial statements, our as described below (required by misstatement of this other information, responsibility is to read the other ISAs (UK) unless otherwise stated). we are required to report that fact. information and, in doing so, We have nothing to report based consider whether the other on these responsibilities.
Strategic Report and Directors’ Report In our opinion, based on the work statements and has been prepared Company and their environment undertaken in the course of the in accordance with applicable legal obtained in the course of the audit, audit, the information given in the requirements. (CA06) we did not identify any material Strategic Report and Directors’ Report misstatements in the Strategic Report In light of the knowledge and for the year ended 30 November and Directors’ Report. (CA06) understanding of the Group and 2017 is consistent with the financial
Corporate Governance Report In our opinion, based on the work prepared in accordance with Corporate Governance Report with undertaken in the course of the applicable legal requirements. respect to the Company’s corporate audit, the information given in the (CA06) governance code and practices Corporate Governance Report and about its administrative, In light of the knowledge and about internal controls and risk management and supervisory understanding of the Group and management systems in relation to bodies and their committees Company and their environment financial reporting processes and complies with rules 7.2.2, 7.2.3 obtained in the course of the audit, about share capital structures in and 7.2.7 of the DTR. (CA06) we did not identify any material compliance with rules 7.2.5 and 7.2.6 misstatements in this information. We have nothing to report arising of the Disclosure Guidance and (CA06) from our responsibility to report if a Transparency Rules sourcebook of corporate governance statement the FCA (‘DTR’) is consistent with the In our opinion, based on the work has not been prepared by the financial statements and has been undertaken in the course of the Company. (CA06) audit, the information given in the
SThree plc Annual Report 2017 113 Overview Strategic Report Governance Financial Statements Shareholder Information
Independent auditors’ report to the members of SThree plc
Report on the audit of the financial statements
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add of the Group, over what period risks facing the Group and statement or draw attention to regarding: they have done so and why they in relation to the longer-term viability • The directors’ confirmation on page consider that period to be of the Group. Our review was 61 of the Annual Report that they appropriate, and their statement substantially less in scope than an have carried out a robust assessment as to whether they have a audit and only consisted of making of the principal risks facing the reasonable expectation that the inquiries and considering the Group, including those that would Group will be able to continue in directors’ process supporting their threaten its business model, future operation and meet its liabilities statements; checking that the performance, solvency or liquidity. as they fall due over the period statements are in alignment with of their assessment, including any the relevant provisions of the UK • The disclosures in the Annual related disclosures drawing Corporate Governance Code (the Report that describe those risks attention to any necessary ‘Code’); and considering whether and explain how they are being qualifications or assumptions. the statements are consistent with managed or mitigated. the knowledge and understanding We have nothing to report having • The directors’ explanation on page of the Group and Company and performed a review of the directors’ 98 of the Annual Report as to how their environment obtained in the statement that they have carried out they have assessed the prospects course of the audit. (Listing Rules) a robust assessment of the principal
Other Code Provisions We have nothing to report in respect strategy is materially inconsistent • The directors’ statement relating of our responsibility to report when: with our knowledge of the Group to the Company’s compliance • The statement given by the and Company obtained in the with the Code does not properly directors, on page 66, that they course of performing our audit. disclose a departure from a consider the Annual Report taken • The section of the Annual Report relevant provision of the Code as a whole to be fair, balanced on page 99 describing the work specified, under the Listing Rules, and understandable, and provides of the Audit Committee does not for review by the auditors. the information necessary for the appropriately address matters members to assess the Group’s communicated by us to the and Company’s position and Audit Committee. performance, business model and
Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06)
SThree plc Annual Report 2017 114 Overview Strategic Report Governance Financial Statements Shareholder Information
Independent auditors’ report to the members of SThree plc
Responsibilities for the financial statements and the audit
Responsibilities of the directors intend to liquidate the Group or the of users taken on the basis of these for the financial statements Company or to cease operations, financial statements. As explained more fully in the or have no realistic alternative but A further description of our Statement of Directors’ Responsibilities to do so. responsibilities for the audit of the set out on page 66, the directors are financial statements is located responsible for the preparation of the Auditors’ responsibilities for the on the FRC’s website at: financial statements in accordance audit of the financial statements www.frc.org.uk/auditorsresponsibilities. with the applicable framework and Our objectives are to obtain This description forms part of our for being satisfied that they give a reasonable assurance about auditors’ report. true and fair view. The directors are whether the financial statements also responsible for such internal as a whole are free from material Use of this report control as they determine is necessary misstatement, whether due to fraud This report, including the opinions, to enable the preparation of financial or error, and to issue an auditors’ has been prepared for and only for statements that are free from material report that includes our opinion. the Company’s members as a body misstatement, whether due to fraud Reasonable assurance is a high in accordance with Chapter 3 of or error. level of assurance, but is not a Part 16 of the Companies Act 2006 guarantee that an audit conducted In preparing the financial statements, and for no other purpose. We do not, in accordance with ISAs (UK) the directors are responsible for in giving these opinions, accept or will always detect a material assessing the Group’s and the assume responsibility for any other misstatement when it exists. Company’s ability to continue as a purpose or to any other person to Misstatements can arise from fraud going concern, disclosing as applicable, whom this report is shown or into or error and are considered material matters related to going concern whose hands it may come save if, individually or in the aggregate, and using the going concern basis of where expressly agreed by our they could reasonably be expected accounting unless the directors either prior consent in writing. to influence the economic decisions
Other required reporting
Companies Act 2006 and the part of the Directors’ exception reporting Remuneration Report to be audited Under the Companies Act 2006 are not in agreement with the we are required to report to you if, accounting records and returns. in our opinion: Christopher Burns We have no exceptions to report (Senior Statutory Auditor) • we have not received all the arising from this responsibility. information and explanations for and on behalf of PricewaterhouseCoopers LLP we require for our audit; or Appointment Chartered Accountants and • adequate accounting records We were appointed by the directors Statutory Auditors have not been kept by the to audit the financial statements for Company, or returns adequate for the year ended 30 November 2005 London our audit have not been received and subsequent financial periods. 26 January 2018 from branches not visited by us; or This is the year SThree plc became a • certain disclosures of directors’ public company. The period of total remuneration specified by law uninterrupted engagement is 13 years, are not made; or covering the years ended 30 November 2005 to 30 November 2017. • the Company financial statements
SThree plc Annual Report 2017 115 Overview Strategic Report Governance Financial Statements Shareholder Information
Financial Statements
117 Consolidated Income Statement
117 Consolidated Statement of Comprehensive Income
118 Statements of Financial Position
119 Consolidated Statement of Changes in Equity
120 Company Statement of Changes in Equity
121 Statements of Cash Flow
122 Notes to the Financial Statements
162 Five Year Financial Summary
SThree plc Annual Report 2017 116 Overview Strategic Report Governance Financial Statements Shareholder Information
Consolidated Income Statement For the year ended 30 November 2017
2017 2016
Before Exceptional exceptional items items Total
Note £’000 £’000
Continuing operations Revenue 2 1,114,530 - 1,114,530 959,861 Cost of sales (826,858) - (826,858) (701,180) Gross profit 2 287,672 - 287,672 258,681 Administrative expenses 3 (242,752) (6,741) (249,493) (220,913) Operating profit 4 44,920 (6,741) 38,179 37,768 Finance income 6 124 - 124 79 Finance costs 6 (439) - (439) (549) Share of results of associate 12 (147) - (147) - Profit before taxation 44,458 (6,741) 37,717 37,298 Taxation 7 (11,392) 1,303 (10,089) (10,056) Profit for the year attributable to owners of the Company 33,066 (5,438) 27,628 27,242 Earnings per share 9 pence pence pence pence Basic 25.7 (4.2) 21.5 21.2 Diluted 24.9 (4.1) 20.8 20.6
The accompanying notes on pages 122 to 161 are an integral part of these financial statements.
Consolidated Statement of Comprehensive Income For the year ended 30 November 2017 2017 2016
£’000 £’000 Profit for the year 27,628 27,242
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations (1,083) 10,774 Total other comprehensive (loss)/income for the year (net of tax) (1,083) 10,774 Total comprehensive income for the year attributable to owners of the Company 26,545 38,016
The accompanying notes on pages 122 to 161 are an integral part of these financial statements. SThree plc (‘The Company’) has elected to take the exemption under Section 408 of the Companies Act 2006 not to present an income statement and statement of comprehensive income for the parent Company.
SThree plc Annual Report 2017 117 Overview Strategic Report Governance Financial Statements Shareholder Information
Statements of Financial Position As at 30 November 2017
Consolidated Company 30 November 30 November 30 November 30 November 2017 2016 2017 2016 Note £'000 £'000 £'000 £'000 Assets Non-current assets Property, plant and equipment 10 6,746 7,100 - - Intangible assets 11 11,386 11,597 - - Investment in associate 12 655 - - - Other Investments 13 1,110 727 206,831 290,233 Deferred tax assets 19 4,199 2,501 298 229 24,096 21,925 207,129 290,462 Current assets Trade and other receivables 14 226,558 189,169 5,188 1,507 Current tax assets 1,534 4,650 14,207 10,423 Cash and cash equivalents 15 21,338 15,707 6,985 394 249,430 209,526 26,380 12,324 Total assets 273,526 231,451 233,509 302,786 Equity and Liabilities Equity attributable to owners of the Company Share capital 20 1,317 1,312 1,317 1,312 Share premium 28,806 27,406 28,806 27,406 Other reserves (8,556) (5,381) (7,489) (5,397) Retained earnings 59,138 52,333 179,906 267,294 Total equity 80,705 75,670 202,540 290,615 Non-current liabilities Provisions for liabilities and charges 18 2,172 907 - - Current liabilities Borrowings 17 12,000 - 12,000 - Bank overdraft 15 3,717 5,685 - - Provisions for liabilities and charges 18 12,352 4,953 - - Trade and other payables 16 159,556 138,859 18,969 12,171 Current tax liabilities 3,024 5,377 - - 190,649 154,874 30,969 12,171 Total liabilities 192,821 155,781 30,969 12,171 Total equity and liabilities 273,526 231,451 233,509 302,786
The accompanying notes on pages 122 to 161 are an integral part of these financial statements.
These financial statements were approved by the Board of Directors and authorised for issue on 29 January 2018. They were signed on its behalf by:
Alex Smith Chief Financial Officer Company registered number: 03805979
SThree plc Annual Report 2017 118 Overview Strategic Report Governance Financial Statements Shareholder Information 62 (12) 612 875 203 £'000 (149) (209) (115) 2,823 3,256 5,035 59,406 27,242 10,774 27,628 16,264 (6,845) (1,083) (4,618) (3,179) 38,016 75,670 26,545 80,705 (17,972) (17,994) owners of the Company owners Total equity attributable toTotal - - - - - 62 (12) £'000 (149) (115) 2,823 3,256 6,332 6,805 46,001 27,242 27,628 (3,929) (1,671) (3,060) (2,972) 27,242 52,333 27,628 59,138 earnings (17,972) (17,994) Retained
------16 £'000 10,774 10,774 (1,083) 10,774 (1,083) (1,083) (1,067) (10,758) Currency translation reserve ------£'000 1,720 2,746 2,959 reserve (6,845) (4,618) (3,179) (1,318) (5,125) (2,092) Treasury (6,443) (8,535) ------878 878 878 £'000 reserve Capital
------168 168 168 £'000 Capital redemption reserveredemption
------560 215 £'000 Share 3,706 1,185 4,266 1,400 23,140 27,406 28,806 Premium ------5 3 4 1 14 17 £'000 Share 1,295 1,312 1,317 capital 8 7 8 7 Note 20(b) 20(b) 20(a) 20(a) 20(a) 20(a) 20(a)
Consolidated Statement of Changes in Equity 2017 ended 30 November For the year Balance at 30 November 2015 Balance at 30 November year for the Profit the year income for Other comprehensive the year income for comprehensive Total Dividends paid to equity holders shareholders Distributions to tracker shares tracker Settlement of vested payments Settlement of share-based shares of own Purchase payments equity-settled share-based to equity for Credit payment tax on share-based and deferred Current transactions in equity movements Total 2016 Balance at 30 November year for the Profit the year loss for Other comprehensive the year (loss)/income for comprehensive Total Dividends paid to equity holders shareholders Distributions to tracker shares tracker Settlement of vested payments Settlement of share-based shares of own Purchase Trust Benefit Employee by shares of own Purchase payments equity-settled share-based to equity for Credit payment tax on share-based and deferred Current transactions in equity movements Total 2017 Balance at 30 November notes on pages 122The accompanying to 161 part of these financial statements. an integral are
SThree plc Annual Report 2017 119 Overview Strategic Report Governance Financial Statements Shareholder Information
13 612 203 (11) £'000 3,720 2,723 3,987 3,256 (6,845) (4,618) (3,179) (18,002) (17,972) (69,743) (17,994) 202,540 326,390 290,615 (35,775) Company (88,075) to owners of the Total equity attributableTotal - - - - 52 13 (11) £'000 2,723 3,256 (2,972) (1,671) earnings (18,002) (17,972) (69,743) (17,994) Retained 302,227 267,294 179,906 (34,933) (87,388) ------£'000 1,720 2,746 2,959 reserve (6,845) (4,618) (3,179) Treasury (1,318) (5,125) (6,443) (2,092) (8,535) ------878 878 878 £'000 reserve Capital ------168 168 168 £'000 reserve Capital redemption
------560 215 £'000 Share 3,706 1,185 4,266 1,400 23,140 27,406 28,806 Premium ------3 4 1 5 14 17 £'000 Share 1,295 1,312 1,317 capital 8 8 1,13 1,13 Note 20(a) 20(a) 20(a) 20(a) 20(a) Balance at 30 November 2015 Balance at 30 November the year loss for comprehensive Total Dividends paid to equity holders shares tracker Settlement of vested payments Settlement of share-based shares of own Purchase payments equity-settled share-based to equity for Credit payment transactions tax on share-based and deferred Current in equity movements Total 2016 Balance at 30 November the year loss for comprehensive Total Dividends paid to equity holders shares tracker Settlement of vested payments Settlement of share-based shares of own Purchase Trust Benefit Employee by shares of own Purchase payments equity-settled share-based to equity for Credit payment transactions tax on share-based and deferred Current in equity movements Total 2017 Balance at 30 November the directors earnings retained as being distributable. assessed by are of £179,906,000 (2016: £267,294,000) reserves, Of the above notes on pages 122The accompanying to 161 part of these financial statements. an integral are Company Statement of Changes in Equity Company 2017 ended 30 November For the year
SThree plc Annual Report 2017 120 Overview Strategic Report Governance Financial Statements Shareholder Information
Statements of Cash Flow For the year ended 30 November 2017
Consolidated Company 2017 2016 2017 2016 Notes £'000 £'000 £'000 £'000 Cash flows from operating activities Profit/(loss) before taxation after exceptional items 37,717 37,298 (70,397) (18,896)
Adjustments for: Depreciation and amortisation charge 10,11 5,744 5,716 - -
Accelerated amortisation and impairment of intangible assets 11 309 - - -
Finance income 6 (124) (79) (14) (76)
Finance costs 6 439 549 601 543
Loss on disposal of property, plant and equipment 4 110 194 - -
Share of results of associate 12 147 - - -
Loss on disposal of subsidiaries 4 144 - 1,142 -
Impairment of investments 13 - - 88,048 40,077
Non-cash charge for share-based payments 20(b) 3,256 2,823 667 811
Operating cash flows before changes in working capital and provisions 47,742 46,501 20,047 22,459 (Increase)/decrease in receivables (35,712) (9,404) (6,860) 172
Increase in payables 19,291 5,731 7,694 903
Increase/(decrease) in provisions 8,758 (632) - -
Cash generated from operations 40,079 42,196 20,881 23,534
Interest received 6 124 79 14 76
Income tax paid - net (10,921) (8,477) (3,306) 656
Net cash generated from operating activities 29,282 33,798 17,589 24,266
Cash generated from operating activities before exceptional items 30,273 34,658 17,589 24,469
Cash outflow from previously recognised exceptional items (991) (860) - (203)
Net cash generated from operating activities 29,282 33,798 17,589 24,266
Cash flows from investing activities Purchase of property, plant and equipment 10 (2,374) (3,220) - -
Purchase of intangible assets 11 (3,392) (3,973) - -
Investments designated as available for sale 13 (383) (727) - -
Investment in associate 12 (802) - - -
Net cash used in investing activities (6,951) (7,920) - -
Cash flows from financing activities Proceeds from borrowings 17 12,000 - 12,000 -
Interest paid (431) (549) (601) (543)
Employee subscriptions for tracker shares 98 192 - -
Proceeds from exercise of share options 215 612 215 612
Purchase of own shares (7,797) (6,845) (4,618) (6,845)
Dividends paid to equity holders 8 (17,994) (17,972) (17,994) (17,972)
Distributions to tracker shareholders (115) (130) - -
Net cash used in financing activities (14,024) (24,692) (10,998) (24,748)
Net increase/(decrease) in cash and cash equivalents 8,307 1,186 6,591 (482) Cash and cash equivalents at beginning of the year 10,022 6,159 394 876
Exchange (losses)/gains relating to cash and cash equivalents (708) 2,677 - -
Net cash and cash equivalents at end of the year 15 17,621 10,022 6,985 394
The accompanying notes on pages 122 to 161 are an integral part of these financial statements.
SThree plc Annual Report 2017 121 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies
SThree plc (‘the Company’) and its as available for sale. The Company they are quoted or unquoted. The subsidiaries (together ‘the Group’) has elected to take the exemption Directors are currently performing an operate predominantly in the United under Section 408 of the Companies assessment of the most appropriate Kingdom & Ireland, Continental Act 2006 not to present an income valuation technique that could be Europe, the USA and Asia Pacific & statement and statement of used to fair value investments in Middle East. The Group consists of comprehensive income for the unlisted companies from the date of different brands and provides both parent Company. The loss after tax initial application. The new valuation Permanent and Contract specialist for the parent Company for the technique can potentially have staffing services, primarily in the year was £69.7 million (2016: loss a material impact on the Group’s Information & Communication of £18.0 million). financial statements once IFRS 9 Technology, Banking & Finance, becomes effective. Energy, Engineering and Life Sciences Adoption of new and revised The Group will start reporting under sectors. The Group’s activities and standards the new standard during the financial business are set out further in the There are no new or amended year ending on 30 November 2019. Strategic section and Directors’ IFRSs or IFRS IC interpretations The Directors expect to be able to Report of this Annual Report. adopted during the year that provide an indication of the impact The Company is a public limited have a significant impact on on the Group’s results in the 31 May company listed on the London Stock these financial statements. 2018 Interim Results. Exchange and incorporated and As at the date of authorisation of domiciled in the United Kingdom these financial statements, the IFRS 15 Revenue from Contracts and registered in England and Wales. following key standards and with Customers Its registered office is 8th Floor, City amendments were in issue but not The standard is effective for annual Place, 55 Basinghall Street, London, yet effective. The Group has not periods beginning on or after 1 January EC2V 5DX. applied these standards and 2018. It introduces the concept of The Group’s principal accounting interpretations in the preparation distinct performance obligations; policies, as set out below, have been of these financial statements. revenue is recognised once consistently applied in the preparation performance obligations are satisfied IAS 7 (amendments) ‘Statement on of these financial statements of all and a client starts benefiting from the Cash flows on Disclosure Initiative’ the periods presented, unless transferred goods or service. IAS 12 (amendments) ‘Income otherwise stated. During 2017, an initial impact Taxes’ assessment of IFRS 15 was performed. Basis of preparation IFRS 2 (amendments) ‘Share Based The preliminary results indicate that These financial statements have Payments’ the adoption of IFRS 15 will not have been prepared in accordance IFRS 9 ‘Financial Instruments’ a significant impact on the basis of with International Financial Reporting IFRS 15 ‘Revenue from Contracts revenue recognition for the Group. Standards (‘IFRSs’) and IFRS with Customers’ Interpretations Committee (‘IFRS IC’) Under IFRS 15, revenue from permanent IFRS 16 ‘Leases’ as adopted and endorsed by the placements will continue to be European Union (‘EU’) and in IFRIC 22 ‘Foreign Currency recognised on the day a recruited accordance with the provisions of the Transactions and Advance employee commences their UK Companies Act 2006 applicable Consideration’ placement and will be based on a to companies reporting under IFRS. IFRIC 23 ‘Uncertainty over Income fixed percentage of the candidate’s Therefore the Group financial Tax Treatments’ remuneration package. Contract statements comply with Article 4 revenue, which represents amounts IFRS 9 Financial Instruments of the EU International Accounting billed or accrued for the services of The standard is effective for annual Standards Regulation. temporary staff, will continue to be periods beginning on or after 1 January recognised when the service has The consolidated and Company 2018. It introduces new classification been provided. only financial statements have been and impairment models for financial prepared under the historical cost assets. IFRS 9 also requires all investments The Group also earns revenue from convention with the exception of in equity instruments to be measured retained assignments. The amount certain financial instruments classified at fair value, regardless of whether of retainer revenue recognised to
SThree plc Annual Report 2017 122 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued) date depicts the amount of retained affect its future development, subsidiary, the gain or loss on disposal search service performed to date performance, its financial position, represents (i) the aggregate of the fair by SThree plc on behalf of the client, cash flows, liquidity position and value of the consideration received towards complete satisfaction of borrowing facilities are described in or receivable, (ii) the carrying amount the bundled retained search service. the Strategic section of the Annual of the subsidiary’s net assets (including Report. In addition, note 24 to these goodwill) at the date of disposal and Based on the preliminary impact financial statements includes details (iii) any directly attributable disposal assessment, it is expected that of the Group’s treasury activities, costs. Amounts previously recognised revenue recognition for retained funding arrangements and objectives, in other comprehensive income in assignments under IFRS 15 will policies and procedures for managing relation to the subsidiary are removed remain consistent with the various risks including liquidity, capital from equity and recognised in the current Group practice. management and credit risks. Consolidated Income Statement as The Group will start reporting under part of the gain or loss on disposal. The Directors have considered the the new standard during the financial Group’s forecasts, including taking year ending on 30 November 2019. account of reasonably possible Revenue and revenue recognition Revenue comprises the fair value IFRS 16 Leases changes in trading performance, and of the consideration received or The new leasing standard is effective the Group’s available banking facilities. receivable for the provision of services for the annual periods beginning Based on this review, the Directors have provided in the ordinary course of on or after 1 January 2019. a reasonable expectation that the Group and the Company have the Group’s activities. Revenue is IFRS 16 requires lessees to account for adequate resources to continue in shown net of value added tax and all leases under a single on-balance operational existence for the other sales-related taxes, returns, sheet model similar to the accounting foreseeable future. For this reason, the rebates and discounts and after for finance leases under IAS 17. For Directors continue to adopt a going elimination of sales within the Group. every lease brought onto the balance concern basis in preparing these Contract revenue for the supply of sheet, lessees will recognise a right-of- financial statements. professional services, which is mainly use asset and a lease liability. based on the number of hours worked by a contractor, is recognised Within the income statement, Basis of consolidation when the service has been provided. operating lease rental payment will The consolidated financial statements Revenue earned but not invoiced at be replaced by depreciation and incorporate the financial statements year end is accrued and included interest expense. This will result in an of the Company, all its subsidiaries in ‘Accrued income’. increase in operating profit and and the Group’s share of its interests an increase in finance costs. in associate. Revenue from Permanent placements is typically based on a fixed percentage The Group will start reporting under Subsidiaries are all entities over of the candidate’s remuneration the new standard during the financial which the Company has the power package and is recognised when year ending on 30 November 2020. to govern the financial and operating candidates commence employment. At present there is no plan for the policies, generally accompanying a Group to adopt this standard early. shareholding of more than one half The Directors expect to be able to of the voting rights. Revenue from retained assignments provide an indication of the impact is recognised on completion of Subsidiaries are fully consolidated on the Group’s results in the 31 May certain pre-agreed stages of the from the date on which control is 2019 Interim Results. service. Fees received for the service transferred to the Group. They are are non-refundable. The Directors are currently evaluating de-consolidated from the date on the impact of the adoption of all which that control ceases. Uniform A provision is established for non- other standards, amendments and accounting policies are adopted fulfilment of Permanent placement interpretations but do not expect across the Group. All intra-group and Contract revenue obligations, them to have a material impact balances and transactions, including which is offset within trade and on the Group operation or results. unrealised profits and losses arising other receivables on the face of the from intra-group transactions, are Consolidated Statement of Financial Going concern eliminated on consolidation. Position and offset against revenue in The Group’s business activities, the Consolidated Income Statement. When the Group disposes of a together with the factors likely to
SThree plc Annual Report 2017 123 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Cost of sales statement in the period in which they primary economic environment in Cost of sales consists of the contractors’ are incurred. which that subsidiary or associate (including employed contractors) operates (its ‘functional currency’). Taxation cost of supplying services and any The consolidated financial statements The tax expense comprises both costs directly attributable to them. are presented in Sterling, which is current and deferred tax. the Company’s functional and Gross profit Current tax presentation currency for the Gross profit represents revenue less The tax currently payable is based consolidated financial statements. cost of sales and consists of the on taxable profit for the year. Taxable Transactions and balances total placement fees of Permanent profit differs from profit before taxation Foreign currency transactions are candidates and the margin earned as reported in the income statement translated into the functional currency on the placement of contractors. because it excludes items of income or expense that are taxable or using the exchange rates prevailing deductible in other years and it at the dates of the transactions. Exceptional items Foreign exchange gains and losses Exceptional items, as disclosed on further excludes items that are never resulting from the settlement of such the face of the Consolidated Income taxable or deductible. The Group’s transactions and from the translation Statement, are items which due to liability for current tax is calculated at period-end exchange rates of their size and non-recurring nature using tax rates that have been monetary assets and liabilities are classified separately in order to enacted or substantively enacted denominated in foreign currencies draw them to the attention of the by the reporting date. are recognised in the income reader of the financial statements Deferred tax statement. and to provide an alternative Deferred tax is provided in full, using performance measure (‘APM’) of the the liability method, on temporary Consolidation underlying profits of the Group. differences at the reporting date The results and financial position of These APMs, adjusted operating arising between the tax bases of all of the Group’s subsidiaries and profit, adjusted earnings per share assets and liabilities and their carrying associate (none of which have the and adjusted profit before tax, amounts in the consolidated financial currency of a hyper-inflationary provide the reader with a clear statements. Deferred tax is calculated economy) that have a functional and consistent view of the business using tax rates that are expected currency different from the Group’s performance of the Group. When to apply when the related deferred presentation currency are translated applicable, these items include the tax asset is realised or the deferred into the presentation currency costs of any fundamental restructuring tax liability is settled, based on tax as follows: where they represent a strategic rates (and tax laws) that have been • assets and liabilities for each change in the operations of the Group, enacted or substantively enacted statement of financial position and are not expected to recur. by the reporting date. presented are translated at the rates ruling at the end of the Deferred tax assets are recognised reporting period; Leases only to the extent that it is probable • income and expenses for each Leases where substantially all the risks that sufficient future taxable profits income statement are translated and rewards of ownership of assets will be available to allow all or part using the average rates of remain with the lessor are accounted of the deferred tax asset to be utilised. exchange for the year (unless for as operating leases. Payments Where an entity has been loss-making, this average is not a reasonable made under operating leases net deferred tax assets are only recognised approximation of the cumulative of any incentives received from the if there is convincing evidence effect of the rates prevailing on lessor are charged to the income supporting its future utilisation. statement on a straight-line basis the transaction dates, in which over the lease periods. case Consolidation (continued) Foreign currencies income and expenses are translated Functional and presentation currency Finance interest at the dates of the transactions); and Items included in the financial Interest income is recognised as the • all resulting exchange differences statements of each of the Group’s interest accrues to the net carrying are recognised in the Consolidated subsidiaries and associates are amount of the financial asset. Interest Statement of Comprehensive measured using the currency of the costs are recognised in the income Income.
SThree plc Annual Report 2017 124 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
The Group treats specific inter- economic benefits associated with Assets under construction company loan balances, which are the item will flow to the Group and Purchased assets or internally not intended to be settled for the the cost of the item can be generated intangible assets that are foreseeable future, as part of its net measured reliably. All other repairs still under development are classified investment in the relevant foreign and maintenance are charged to as ‘assets under construction’. These operations. On consolidation, the income statement during the assets are reclassified within intangibles exchange differences arising from period in which they are incurred. over the phased completion dates the translation of the net investment and are amortised from the date Gains and losses on disposals are in foreign entities and of borrowings they are reclassified. determined by comparing proceeds and other currency instruments with carrying amounts. These are designated as hedges of such Software and system included in the income statement. investments, are recognised as a development costs An asset’s carrying amount is written separate component of equity and Costs incurred on development down immediately to its recoverable are included in the Group’s currency projects (relating to the introduction amount if the asset’s carrying value translation reserve (‘CTR’). When a or design of new systems or is greater than its estimated foreign operation is sold, such improvement of the existing systems) recoverable amount. exchange differences are reclassified are only capitalised as intangible from CTR to the Consolidated Income assets if capitalisation criteria under Intangible assets Statement to form part of the gain IAS 38 ‘Intangible Assets’ are met, i.e. or loss on disposal. Goodwill where the related expenditure is Goodwill arising on consolidation separately identifiable, the costs represents the excess of purchase are measurable and management Property, plant and equipment is satisfied as to the ultimate Property, plant and equipment is consideration over the fair value of technical and commercial viability of stated at historical cost, net of the Group’s share of the identifiable the project such that it will generate accumulated depreciation and net assets of the acquired subsidiary future economic benefits based on any provision for impairment. Historical at the date of acquisition. Goodwill all relevant available information. cost includes expenditure that is on the acquisition of subsidiaries has Capitalised development costs are directly attributable to the an indefinite useful life and is included amortised from the date the system is acquisition of the assets. in intangible assets. Goodwill arising on the acquisition of associates is available for use over their expected Depreciation is calculated using the included within the carrying value useful lives (not exceeding five years). straight-line method to allocate the of the investment. If the goodwill Other costs linked to development depreciable value of property, plant balance is material, it is tested annually projects that do not meet the above and equipment to the income for impairment and carried at cost criteria such as data population, statement over their useful economic less accumulated impairment losses. research expenditure and staff lives after they have been brought Any impairment is recognised training costs are recognised as into use at the following rates: Assets’ immediately in the income statement an expense as incurred. residual values and useful lives are and is not subsequently reversed. On reviewed at the end of the reporting disposal of a subsidiary or associate, Trademarks period and, if appropriate, changes the attributable amount of goodwill Trademarks are initially recognised at are accounted for prospectively. is included in the determination of cost. They have a definite useful life Subsequent costs are included in the the profit or loss on disposal. and are carried at cost less asset’s carrying amount or recognised accumulated amortisation. Acquired computer software as a separate asset, as appropriate, Amortisation is calculated using The cost of acquired computer only when it is probable that future the straight-line method to allocate software licenses is capitalised. The the cost of trademarks over their cost includes the expenditure that estimated useful lives (up to Computer is directly attributable to the three years twelve years). equipment acquisition of the software. The costs Leasehold lower of five years are amortised over their estimated Impairment of assets improvements and lease period useful lives of three to seven years. Assets that are not subject to amortisation are tested annually for Fixtures and Costs associated with maintaining five years impairment. Any impairment loss is fittings computer software are recognised recognised in the income statement as an expense as they are incurred.
SThree plc Annual Report 2017 125 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued) for the amount by which the asset’s The investments in shares in the recognised in the Consolidated carrying amount exceeds its undertakings outside of the Group, in Statement of Financial Position recoverable amount. particular where the Group does not when the Group becomes a party have significant influence or control, to the contractual provisions of Assets that are subject to amortisation are considered to be available for the instrument. are reviewed for impairment sale financial assets. Since they are whenever events or changes in investments in unlisted entities Financial assets circumstances indicate that their where fair value cannot be readily Non-derivative financial assets respective carrying amounts may determined, they are initially are classified as either ‘loans and not be recoverable. An impairment recognised at cost with subsequent receivables’ or ‘available for sale’. loss is recognised in the income measurement at cost less provision The classification depends on the statement for the amount by which for impairment. nature and purpose of the financial the asset’s carrying amount exceeds assets and is determined at the time its recoverable amount, by analysing Where share-based payments of initial recognition. individual assets or classes of assets are granted to the employees of that naturally belong together. The subsidiary undertakings by the parent Available for sale financial assets recoverable amount represents the Company, they are treated as a Available for sale financial assets higher of an asset’s fair value less capital contribution to the subsidiary are measured at fair value, with gains costs of disposal and its value in use. and the Company’s investment in the or losses recognised within other Value in use is measured based on subsidiary is increased accordingly. comprehensive income, except for the expected future discounted cash impairment losses, and for available flows attributable to the asset. For the Associate for sale debt instruments, foreign purposes of assessing impairment, The results, assets and liabilities of an exchange gains or losses. When the assets are grouped at the lowest associate are incorporated in these relevant, interest on available for levels for which there are separately financial statements using the equity sale financial assets is recognised identifiable cash flows (cash- method of accounting. using the effective interest method. generating units). Under the equity method, the Any changes in fair value arising investment in associate is carried from revised estimates of future cash Investments in the Consolidated Statement of flows are recognised in the income statement. If the investment is made Subsidiaries Financial Position at cost plus post- in shares or debt instruments issued The Company’s investments in shares acquisition changes in the Group’s by an unlisted entity, and where fair in subsidiary companies are stated share of net assets of the associate, value cannot be readily determined, at cost less provision for impairment. less distributions received and less the investment is initially recognised Any impairment is charged to the any impairment in value of the at cost, and on subsequent Company’s Income Statement as investment. measurement dates at cost less it arises. The Group assesses investments in provision for impairment. An investment is deemed to be equity-accounted entities for impaired when it has been impairment whenever events or Loans and receivables determined that its carrying value changes in circumstances indicate Loans and receivables are will not be recovered either through that the carrying value may not be non-derivative financial assets with actual cash flows or operating recoverable. If any such indication fixed or determinable payments that profit generation or selling it. If of impairment exists, the carrying are not quoted in an active market. circumstances arise that indicate amount of the investment is They are included in current assets, that investments might be impaired, compared with its recoverable except for maturities greater than the recoverable amount of the amount, being the higher of its fair twelve months after the end of the investment is estimated. The value less costs of disposal and reporting period. These are classified recoverable amount is the higher value in use. If the carrying amount as non-current assets. The Group’s of the entity’s ‘fair value less costs of exceeds the recoverable amount, loans and receivables comprise disposal’ or its ‘value in use’. To the the investment is written down to its ‘trade and other receivables’ and extent that the carrying value recoverable amount. ‘cash and cash equivalents’ in the exceeds the recoverable amount, statement of financial position. the investment is impaired to its Financial instruments recoverable amount. Financial assets and liabilities are
SThree plc Annual Report 2017 126 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Trade and other receivables Trade and other payables cancelled or reissued. No gain or loss Trade receivables are recorded Trade and other payables are is recognised in the income statement initially at fair value and thereafter at recognised initially at fair value and on the purchase, sale, issue or net realisable value after deducting subsequently measured at amortised cancellation of equity shares. an allowance for impairment. The cost using the effective interest method. Group makes judgements on a Employee Benefit Trust Other financial liabilities customer by customer basis as to The Employee Benefit Trust (‘EBT’) was Other financial liabilities, including its ability to collect outstanding originally funded by gifts from certain borrowings and overdraft, are initially receivables and provides an of the Company’s shareholders and measured at fair value, net of allowance for impairment based Directors. The assets and liabilities of transaction costs and subsequently on a specific review of significant the EBT are recognised in the Group’s held at amortised cost. outstanding invoices. For those consolidated financial statements. invoices not specifically reviewed, The shares in the EBT are held to provisions are provided at differing Provisions satisfy awards and grants under percentages based on the age of Provisions are recognised when certain employee share schemes. the receivable. In determining these the Group has a present legal or For accounting purposes, shares held percentages, the Group analyses constructive obligation as a result in the EBT are treated in the same its historical collection experience of a past event for which, it is more manner as treasury shares and are, and current economic trends. Trade likely than not that an outflow of therefore, included in the consolidated receivable balances are written off resources will be required to settle financial statements as treasury shares. when the Group determines that it is the obligation and the amount Consideration, if any, received for the unlikely that future remittances will can be reliably estimated. sale of such shares is also recognised be received. Provisions are recognised as the in equity, with any difference between present value of the expenditures Cash and cash equivalents the proceeds from sale and the expected to be required to settle the Cash and cash equivalents include original cost being taken to retained obligation. No provision is recognised cash in hand, deposits held on call earnings. No gain or loss is recognised for future operating losses. with banks, other short-term highly in the income statement on the liquid investments with original Where there are a number of similar purchase, sale, issue or cancellation maturities of three months or less and obligations, the likelihood that an of equity shares held by the EBT. bank overdrafts. Bank overdrafts are outflow will be required in settlement In the separate financial statements shown within current liabilities in the is determined by considering the class of the Company, the EBT is treated statement of financial position unless of obligation as a whole. A provision as an agent acting on behalf of the they form part of a cash pooling may be recognised even if the Company. Funding provided by the arrangement where there is an likelihood of an outflow with respect to Company to the EBT is accounted intention to settle on a net basis, in any one item included in the same for as the issue of treasury shares. which case they are reported net class of obligations may be small. of related cash balances. Dividends Share capital Interim dividends are recognised Financial liabilities and overdrafts Ordinary shares are classified as in the financial statements at the All non-derivative financial liabilities equity. Incremental costs directly earlier of the time they are paid or are classified as ‘other financial attributable to the issue of new shareholders’ approval. Final dividends liabilities’ and are initially measured shares or options are shown in declared to the Company’s share- at fair value, net of transaction costs equity as a deduction, net of holders are recognised as a liability incurred. Other financial liabilities are tax, from the proceeds. in the Company’s and Group’s subsequently measured at amortised The Group’s holdings in its own equity financial statements in the period cost using the effective interest rate instruments are classified as ‘treasury in which they are approved by method. Financial liabilities are shares’. The consideration paid, the Company’s shareholders. classified as current liabilities unless including any directly attributable the Group has an unconditional right The Company recognises dividends incremental costs is deducted from to defer settlement for at least twelve from subsidiaries at the time that the equity attributable to the owners months after the end of the reporting they are declared. of the Company until the shares are period.
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Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Employee benefits granted and is recognised as an Tracker share arrangements Wages, salaries, bonuses, social expense over the vesting period, The Group invites selected senior security contributions, paid annual which ends on the date on which the individuals to invest in the businesses leave or sick leave and any other employees become fully entitled to they manage, sharing in both the employee benefits are accrued in the award. Fair value is determined risk and reward. These individuals are the period in which the associated by using an appropriate valuation offered equity (‘tracker shares’) in services are rendered by employees model. In valuing equity-settled those businesses in return for making to the Group. transactions, no account is taken of an investment. The amount of any vesting conditions, other than equity offered varies in different Pension obligations – the Group has conditions linked to the price of the circumstances but is never over 25% defined contribution plans and pays share of the Company (market of the overall equity of the business in contributions to privately administered conditions). question. The equity stake tracks the pension plans on a mandatory, performance of the underlying contractual or voluntary basis. No expense is recognised for business and the individuals receive The Group has no further payment awards that do not ultimately vest. dividends (if declared) by the obligations once contributions For the awards with non-vesting ‘tracked’ business. have been paid. conditions (awards that do not have an explicit or implicit service If an individual remains a holder of Bonus plans – the Group recognises requirement), the full cost of the the tracker shares for a pre-agreed a liability and an expense for bonuses award is recognised on the grant period, typically three to five years based on the Directors’ best estimate date, i.e. they are treated as fully depending on the vesting period of amounts due. The Group also vested irrespective of whether or applied to the tracker shares, they recognises an accrual where not the market condition is satisfied. may then offer their vested tracker contractually obliged or where shares for sale to the Group, but there is a past practice of payments At the end of the reporting period, there is no obligation on the Group that has created a constructive the cumulative expense is calculated, to settle the arrangement. SThree will obligation. representing the extent to which undertake a formal due diligence the vesting period has expired and Termination benefits – termination process to establish whether there management’s best estimate of benefits are payable once is a sound business case for settling the achievement or otherwise of employment is terminated before an a tracker share and make an arm’s non-market conditions and the agreed retirement date, or whenever length judgement. Should the Group number of equity instruments that an employee accepts voluntary decide to settle the tracker shares, it will ultimately vest or, in the case of redundancy in exchange for those will do so at a price, which is an instrument subject to a market benefits. The Group recognises determined using a formula stipulated condition, it is treated as vesting as termination benefits when it is in the tracker share Articles of described above. The movement demonstrably committed to either Association (‘Articles’). SThree plc in cumulative expense since the terminating the employment of may settle in cash or in its shares, as it previous year-end is recognised employees according to a detailed chooses. The Group policy is to settle in the income statement, with a formal plan without the possibility of in SThree plc shares. Consequently, corresponding credit recognised withdrawal, or providing termination the arrangements are deemed to in equity. benefits as a result of an offer made be an equity-settled share-based to encourage voluntary redundancy. Where an equity-settled award is payment scheme under IFRS 2. cancelled, it is treated as if it had Individuals must pay the fair value for Share-based payments vested on the date of cancellation the tracker shares at the time of the The Group operates a number and any cost not yet recognised in initial subscription, as determined by of equity-settled share-based the income statement for the an independent third party valuer in arrangements, under which it receives award is expensed immediately. accordance with IFRS 2 ‘Share-based services from employees in return for Any compensation paid, up to the payments’ and taking into account equity instruments of the Group. The fair value of the award, at the the particular rights attached to the cost of equity-settled transactions cancellation or settlement date shares as described in the relevant with employees is measured by is deducted from equity, with any businesses’ Articles. The initial valuation reference to the fair value at the excess over fair value being treated takes into consideration factors such date at which equity instruments are as an expense in the Consolidated as the size and trading record of Income Statement.
SThree plc Annual Report 2017 128 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Tracker share arrangements equates to the fair value at that date. received, but the individual is ‘live’ (continued) Dividends declared by the tracked on the Group’s systems, or where the underlying business, expected businesses, which are factored into a client has not yet approved dividends, future projections, as well the grant date fair value a submitted timesheet. Such as the external market, sector and determination of the tracker shares, accruals are removed after three country characteristics. The external are recorded in equity as ‘distributions months if no timesheet is received valuer is supplied with detailed to tracker shareholders’. or customer approval obtained. financial information, including gross The amount of contractor revenue When the Company issues new profit and EBITDA of the relevant that is accrued rather than billed shares to settle the tracker share businesses. Using this information an at each period end is significant. arrangements, the nominal value of independent calculation of the initial The value of unsubmitted the shares is credited to share capital Equity Value (EV) is prepared. This timesheets for each individual and the difference between the fair EV is then discounted to arrive at a contractor is system generated value of the tracker shares and the valuation to take into account the and estimation is applied nominal value is credited to share relevant characteristics of the principally to the number of hours premium. If the Company uses shareholding in the tracked business, worked. The number of hours treasury shares to settle the for example the absence of voting worked is system generated arrangements, the difference between rights. The methodology for calculating based on the contractual hours the fair value of the tracker shares the EV is applied consistently, although and working days for each and the weighted average value of the data used varies depending on contractor and adjusted for the treasury shares is accounted for the size and history of the business. expected holidays or other events in the retained earnings. that could reduce the revenue. If an individual leaves the Group before the pre-agreed period, they Significant accounting judgements However, the revenue is adjusted are entitled to receive the lower of and estimates to reflect actual data from the initial subscription amount they The preparation of financial contractor timesheets received contributed or the tracker share fair statements in conformity with IFRSs two to three weeks after the year value on the date of departure as requires the use of judgements and end and where timesheets are set out under the Articles. To reflect estimates that affect the reported not submitted. The key judgement this, a provision in relation to tracker amounts of assets and liabilities at the is the time period of three months shares is recognised at cost on initial date of the financial statements and between accrual of a timesheet subscription and held at cost and the reported amounts of revenues and the write off of this revenue if reflects the consideration for tracker and expenses during the reporting a timesheet is not received and shares received from individuals period. Although these estimates approved. Any difference (note 18). are based on the Directors’ best compared to the actual time knowledge of the amounts, actual worked by the contractor would Up until 2014 certain individuals results may ultimately differ from result in the amount payable to received loans from the Group to those estimates. The significant the contractor and accrued pay part of the initial subscription for accounting judgements and revenue receivable from the their tracker shares, on which interest estimates made by the Directors in client being adjusted in the next is charged at or above the HMRC these financial statements are set financial year. The assumptions beneficial loan rate. These loans are out below. underlying this estimate are repayable by the individuals either at considered appropriate and the time of settlement of their tracker (i) Contract revenue is recognised continue to be in line with IFRS shares, or via tracker share dividend when the supply of professional requirements. or when they leave the Group. These services has been rendered. This loans are included within other includes an assessment of (ii) The fair value of the TSR tranche receivables (note 14). professional services received by of equity-settled share-based the client for services provided by payments is partly derived from When tracker shares are granted, contractors between the date estimates of factors such as the no share-based payment charge is of the last received timesheet future volatility of the Company’s recognised in the income statement and the year end. Revenue is share price, expected dividend on the basis that the initial subscription therefore accrued for contractors yields and risk-free interest rates. by the individual at the grant date where no timesheet has been The EPS tranche is valued each
SThree plc Annual Report 2017 129 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Significant accounting judgements scheme is treated as equity Company evaluates various and estimates (continued) settled. There are significant factors related to the operational period end based on growth accounting differences between and financial position of the of EPS to date versus the an equity settled and cash relevant investee business, performance metrics of each settled scheme. appropriate discounting and scheme. The judgement applied long term growth rates. There are also certain estimates is that performance to date is an involved in determining the fair (vi) Exceptional items are disclosed appropriate measure for future value of tracker shares at the time separately on the face of the performance. of initial subscription. The grant Consolidated Income Statement. (iii) The tracker share arrangements date fair valuation, which is This involves management give the Group the choice to performed by an independent judgement as to which costs settle tracker shares in either third party valuer, is based on qualify as exceptional. cash or SThree plc shares. There is information provided by (vii) Provisions are held in respect of a therefore a judgement required management and their own range of obligations such as as to whether this is a cash or analysis. The judgements pertain restructuring, dilapidation and equity settled share-based to the forecast growth of the litigation provisions. These provisions payment scheme. Based on businesses, the operational and involve significant management the Directors’ judgement, the geographical risks relevant to judgement about the likely tracker share arrangements those businesses and other similar outcome of various events and are accounted for as an equity- areas. Most other aspects of the estimated future cash flows. The settled share-based payment tracker share arrangements follow amount recognised as a provision scheme under IFRS 2 as the Group’s a rule based approach, e.g. is the best estimate of the policy is to settle its obligations vesting period or settlement consideration required to settle under the arrangements in SThree formula. the present obligation. plc shares. As described in the (iv) Judgement is required in the accounting policy, the Company Specifically, the timing and determination of the software settles tracker shares through valuation of a restructuring and system development project either treasury shares or the issue provision requires additional costs that satisfy the IAS 38 criteria of new shares in SThree plc. The judgement in assessing whether for capitalisation as intangible Companies Act 2006 does not provisions only include the direct assets. Judgement is also required specify whether the issue of expenditures arising from the for the estimation of future treasury shares to settle share- restructuring, which are those that economic benefits and that based payments should be are both necessarily entailed by these will exceed the estimated accounted for in share premium the restructuring and not development costs and for the or elsewhere. The Company has associated with the ongoing assessment of their recoverability taken legal advice which confirms activities of the entity. The Directors’ to evaluate if there are any this is judgemental and therefore assessment is that costs related to indicators of impairment. the approach taken by the the transition, design and set up Company is to include differences (v) The Company assesses its of a new support function or for between the fair value of the investments in subsidiaries and which there is no legal or tracker shares settled and the other companies for impairment constructive obligation at year weighted average cost of treasury whenever events or changes end should not be included within shares in retained earnings. in circumstances indicate that the 2017 restructuring provision. Tracker shares can be the recoverable amount of the However, as these costs directly repurchased from holders with investment could be less than the relate to the restructuring they either cash or SThree plc shares carrying value of the investment. will be recognised as exceptional at the Company’s discretion. The If this is the case, the investment is items at the point such obligation Company’s policy and intention considered to be impaired and arises. is written down to its recoverable is to settle tracker shares using (viii) The Group recognised a deferred amount. Judgement is required SThree plc shares. Therefore the Tax asset of £0.9 million (2016: £0.9 in the determination of the judgement of the Directors is million) in respect of trading losses recoverable amount as the that this share based payment of £2.9 million (2016: £2.9 million)
SThree plc Annual Report 2017 130 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
1. Accounting Policies (continued)
Significant accounting judgements recognised in respect of the the relevant subsidiaries’ historical and estimates (continued) remaining £25.9 million (2016: performance and profitability that are to be carried forward £26.4 million) losses. The judgement forecast for future years, which and relieved against profits arising to recognise the deferred tax contain a degree of inherent from relevant subsidiary asset is dependent upon the uncertainty. undertakings in future periods. Group’s expectations regarding No deferred tax asset was future profitability based upon
2. Segmental Analysis
IFRS 8 ‘Segmental Reporting’ require (‘GMB’) made up of the Chief business into four regions: the United operating segments to be identified Executive Officer, the Chief Financial Kingdom & Ireland (‘UK&I’), Continental on the basis of internal results about Officer, the Chief Operating Officer, Europe, the USA and Asia Pacific & components of the Group that are the Chief People Officer and the Middle East (‘APAC & ME’). regularly reviewed by the entity’s Chief Sales Officer, with other senior The Group’s management reporting chief operating decision maker to management attending via invitation. and controlling systems use make strategic decisions and assess Operating segments have been accounting policies that are the segment performance. identified based on reports reviewed same as those described in note 1 by the GMB, which consider the Management has determined the in the summary of significant business primarily from a geographical chief operating decision maker to accounting policies. perspective. The Group segments the be the Group Management Board
Revenue and Gross Profit by reportable segment The Group measures the performance in the management reporting and Intersegment revenue is recorded at of its operating segments through controlling systems. Gross profit is values which approximate third party a measure of segment profit or loss the measure of segment profit selling prices and is not significant. which is referred to as ‘Gross Profit’ comprising revenue less cost of sales.
Revenue Gross Profit 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 UK&I 269,777 290,285 55,687 64,032 Continental Europe 576,018 448,606 150,636 127,543 USA 212,737 171,313 64,369 50,682 APAC & ME 55,998 49,657 16,980 16,424 1,114,530 959,861 287,672 258,681
Continental Europe primarily includes Austria, Belgium, France, Germany, Luxembourg, Netherlands, Spain and Switzerland. APAC & ME mainly includes Australia, Dubai, Hong Kong, Japan, Malaysia and Singapore.
SThree plc Annual Report 2017 131 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
2. Segmental Analysis (continued)
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 2017 2016 2017 2016 £'000 £'000 £'000 £'000 UK 259,028 275,839 51,922 58,828 Germany 256,825 206,130 78,021 67,739 USA 212,737 171,313 64,369 50,682 Netherlands 180,602 131,174 38,039 29,201 Other 205,338 175,405 55,321 52,231 1,114,530 959,861 287,672 258,681
Non-Current Assets 30 November 30 November 2017 2016 £'000 £'000 UK 15,702 15,044 USA 1,608 2,481 Germany 1,132 589 Netherlands 431 165 Other 1,024 1,145 19,897 19,424
The following segmental analysis by brands, recruitment classification and sectors (being the profession of candidates placed) have been included as additional disclosure to the requirements of IFRS 8.
Revenue Gross Profit 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 Brands Progressive 344,537 275,729 77,105 65,859 Computer Futures 311,134 265,751 83,700 75,231 Real Staffing Group 230,330 225,123 70,684 67,915 Huxley Associates 228,529 193,258 56,183 49,676 1,114,530 959,861 287,672 258,681
Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.
SThree plc Annual Report 2017 132 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
2. Segmental Analysis (continued)
Recruitment classification Contract 1,030,359 874,440 203,501 173,260 Permanent 84,171 85,421 84,171 85,421 1,114,530 959,861 287,672 258,681
Sectors Information & Communication Technology 502,299 447,560 124,746 115,844 Banking & Finance 181,007 168,263 43,502 41,735 Life Sciences 176,870 147,056 62,351 54,262 Energy 142,822 107,889 26,494 19,595 Engineering 97,469 79,016 25,851 23,253 Other 14,063 10,077 4,728 3,992 1,114,530 959,861 287,672 258,681
Other includes Procurement & Supply Chain and Sales & Marketing.
3. Administrative expenses - Exceptional items
On 1 November 2017, the Group including £1.1 million of restructuring included within the 2017 restructuring communicated to the market that it costs incurred or accrued, mainly for provision and will be recognised was commencing a consultation professional advisor fees, and £5.6 each year up to 2020. with employees on the proposed million as a provision for redundancy Due to the material size and relocation of central support functions items. A restructuring provision can non-recurring nature of this strategic away from its London headquarters only include the direct expenditure restructuring project, the associated to a new facility located within arising from the announced strategic costs have been separately Glasgow and a restructuring of the restructuring, which are costs that disclosed as exceptional items in the marketing department. The purpose are both necessarily entailed by the Consolidated Income Statement. of this strategic restructuring is to restructuring and not associated with Disclosure of items as exceptional, realise annualised cost savings of the ongoing activities of the entity. highlights them and provides a approximately £4.0 million per annum. Restructuring costs related to the clearer, comparable view The restructuring is expected to result transition, design and set up of the of underlying earnings. in certain material one-off costs new support function or for which totalling approximately £14 million there is no constructive obligation at Items classified as exceptional to £16 million, of which an estimated the year end have not been were as follows: £15 million is operating expenses and approximately £0.5 million is property 30 November 30 November fit out costs (to be capitalised), less 2017 2016 approximately £2 million of grant receivable from Scottish Enterprise. £'000 £'000 The costs are mainly related to Exceptional items - charged to operating profit people, property and professional Personnel costs - redundancy 5,709 - advisor fees. Professional advisor fees 1,017 -
In 2017, restructuring costs of £6.7 Other 15 - million have been charged to the Consolidated Income Statement, Total exceptional costs 6,741 -
SThree plc Annual Report 2017 133 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
4. Operating profit
Operating profit is stated after charging/(crediting): 30 November 30 November 2017 2016 £'000 £'000 Depreciation (note 10) 2,516 2,276 Amortisation (note 11) 3,228 3,440 Accelerated amortisation and impairment of intangible assets (note 11) 309 - Foreign exchange gains (345) (849) Staff costs (note 5) 187,419 168,971 Movement in bad debt provision and debts directly written off 496 573 Loss on disposal of property, plant and equipment (note 10) 110 194 Loss on disposal of intangible assets (note 11) 66 44 Exceptional restructuring costs (note 3) 6,741 - Loss on disposal of subsidiaries (1) 144 - Operating lease charges - Motor vehicles 1,790 1,449 - Land and buildings 12,005 11,279
(1) The accumulated foreign exchange net loss reclassified from Currency Translation Reserve to the Consolidated Income Statement on liquidation of subsidiary companies.
Auditors’ remuneration During the year the Group (including its subsidiaries) obtained the following services from the Company’s auditors and its associates:
30 November 30 November 2017 2016 Amounts payable to PricewaterhouseCoopers LLP and its associates: £'000 £'000 Fees payable to the Company’s auditors for the audit of the Company’s annual financial 72 72 statements Fees payable to the Company’s auditors and their associates for other services to the Group: - Audit of the Company's subsidiaries pursuant to legislation 293 304 - Audit related assurance services 11 12 - All other non-audit services 8 82 Fees charged to operating profit 384 470
SThree plc Annual Report 2017 134 Overview Strategic Report Governance Financial Statements Shareholder Information
Notes to the Financial Statements For the year ended 30 November 2017
5. Directors and employees
Aggregate remuneration of employees including Directors was: 30 November 30 November 2017 2016 £'000 £'000 Wages and salaries (including bonuses) 157,972 144,506 Social security costs 22,599 18,331 Other pension costs 1,810 1,877 Temporary staff costs 1,727 1,364 Share-based payments 3,311 2,893 187,419 168,971
The staff costs capitalised during the above amounts were £2.2 million The average monthly number of year on internally developed assets (2016: £2.2 million). employees (including Executive (note 11) and not included in the Directors) during the year was:
30 November 2017 UK&I Continental Europe USA APAC & ME Total Sales 535 1,183 336 166 2,220 Non-sales 366 167 75 28 636 901 1,350 411 194 2,856
30 November 2016 UK&I Continental Europe USA APAC & ME Total Sales 578 1,097 366 194 2,235 Non-sales 378 129 66 29 602 956 1,226 432 223 2,837
Included in the headcount numbers included in the numbers above as provided in the audited information above were 110 (2016: 102) they are not considered to be full section of the Directors’ temporary full time employees. time employees of the Group. Remuneration Report.
There were also on average 1,909 Details of the Directors’ remuneration One Directors’ compensation for loss (2016: 1,163) contractors engaged for the year including the highest of office is £0.6 million (2016: £nil). during the year under the employed paid director, which form part of contractor model. They are not these financial statements, are
6. Finance income and costs
30 November 30 November 2017 2016 Finance income £'000 £'000 Bank interest receivable 101 49 Other interest 23 30 124 79
Finance costs Bank loans and overdrafts (439) (549) Net finance costs (315) (470)
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Notes to the Financial Statements For the year ended 30 November 2017
7. Taxation
(a) Analysis of tax charge for the year 30 November 30 November 2017 2016 Before Exceptional Total exceptional items items £'000 £'000 £'000 £’000 Current taxation Corporation tax charged on profits for the year 13,520 (946) 12,574 9,349 Adjustments in respect of prior periods (758) - (758) 1,281 Total current tax charge/(credit) 12,762 (946) 11,816 10,630
Deferred taxation Origination and reversal of temporary differences (743) (357) (1,100) (768) Adjustments in respect of prior periods (note 19) (627) - (627) 194 Total deferred tax credit (1,370) (357) (1,727) (574)
Total income tax charge/(credit) in the income statement 11,392 (1,303) 10,089 10,056
(b) Reconciliation of the effective tax rate The Group‘s tax charge for the year exceeds (2016: exceeds) the UK statutory rate and can be reconciled as follows:
30 November 30 November 2017 2016 Before exceptional Exceptional items items Total £'000 £'000 £'000 £’000 Profit before taxation 44,458 (6,741) 37,717 37,298 Profit before taxation multiplied by the standard rate of 8,594 (1,303) 7,291 7,460 corporation tax in the UK at 19.33% (2016: 20%)*
Effects of: Disallowable items 847 - 847 442 Differing tax rates on overseas earnings 2,725 - 2,725 1,588 Adjustments in respect of prior periods (1,385) - (1,385) 1,475 Adjustment due to tax rate changes 33 - 33 (41) Tax losses for which deferred tax asset was derecognised/ 578 - 578 (868) (recognised)
Total tax charge/(credit) for the year 11,392 (1,303) 10,089 10,056 Effective tax rate 25.6% 19.3% 26.7% 27.0%
* The UK corporation tax rate reduced from 20% to 19% with effect from 1 April 2017.
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Notes to the Financial Statements For the year ended 30 November 2017
7. Taxation (continued)
(c) Current and deferred tax movement recognised directly in equity 30 November 30 November 2017 2016 £'000 £'000 Equity-settled share-based payments Current tax - (26) Deferred tax (62) 38 Effective tax rate (62) 12
The Group expects to receive (or estimated future tax deduction) or deferred tax should be recognised additional tax deductions in respect exceeds the amount of the related in equity. At 30 November 2017, of share options currently unexercised. cumulative remuneration expense, a deferred tax asset of £1.0 million Under IFRS the Group is required this indicates that the tax deduction (2016: £0.6 million) has been to provide for deferred tax on all relates not only to remuneration recognised in respect of these unexercised share options. Where expense but also to an equity item. In options (note 19). the amount of the tax deduction this situation, the excess of the current
8. Dividends
30 November 30 November 2017 2016 £'000 £'000 Amounts recognised as distributions to equity holders in the year Interim dividend of 4.7p (2016: 4.7p) per share (i) 6,052 6,049 Final dividend of 9.3p (2016: 9.3p) per share (ii) 11,942 11,923 17,994 17,972
Amounts proposed as distributions to equity holders Interim dividend of 4.7p (2016: 4.7p) per share (iii) 6,038 6,052 Final dividend of 9.3p (2016: 9.3p) per share (iv) 12,086 12,002
(i) 2016 interim dividend of 4.7 (iii) 2017 interim dividend of 4.7 proposed final dividend is subject pence (2015: 4.7 pence) per pence (2016: 4.7 pence) per to approval by shareholders at share was paid on 9 December share was paid on 8 December the Company’s next Annual 2016 to shareholders on record 2017 to shareholders on record General Meeting on 26 April at 4 November 2016. at 3 November 2017. 2018, and therefore, has not (ii) 2016 final dividend of 9.3 pence (iv) The Board has proposed a 2017 been included as a liability in (2015: 9.3 pence) per share final dividend of 9.3 pence (2016: these financial statements. was paid on 9 June 2017 to 9.3 pence) per share, to be paid shareholders on record at on 8 June 2018 to shareholders 5 May 2017. on record at 27 April 2018. This
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Notes to the Financial Statements For the year ended 30 November 2017
9. Earnings per share
The calculation of the basic and during the year excluding shares dilutive potential shares. Potential diluted earnings per share (‘EPS’) is held as treasury shares (note 20(a)) dilution resulting from tracker share set out below: and those held in the EBT which are stakes into account profitability of treated as cancelled. the underlying tracker businesses Basic EPS is calculated by dividing and SThree plc’s earnings per share. the earnings attributable to owners For diluted EPS, the weighted Therefore, the dilutive effect on EPS of the Company by the weighted average number of shares in issue will vary in future periods depending average number of shares in issue is adjusted to assume conversion of on any changes in these factors.
30 November 30 November 2017 2016 £'000 £'000
Earnings Profit for the year after tax before exceptional items 33,066 27,242 Exceptional items net of tax (5,438) - Profit for the year attributable to owners of the Company 27,628 27,242
million million
Number of shares Weighted average number of shares used for basic EPS 128.6 128.3 Dilutive effect of share plans 4.0 3.8 Diluted weighted average number of shares used for diluted EPS 132.6 132.1
30 November 30 November 2017 2016 pence pence Basic Basic EPS before exceptional items 25.7 21.2 Impact of exceptional items (4.2) - Basic EPS after exceptional items 21.5 21.2
Diluted Diluted EPS before exceptional items 24.9 20.6 Impact of exceptional items (4.1) - Diluted EPS after exceptional items 20.8 20.6
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Notes to the Financial Statements For the year ended 30 November 2017
10. Property, plant and equipment
Computer Leasehold Fixtures equipment improvements and fittings Total
£’000 £’000 £’000 £’000 Cost At 30 November 2015 12,167 6,585 3,515 22,267 Additions 615 2,204 401 3,220 Disposals (2,992) (1,396) (242) (4,630) Exchange differences 738 1,009 492 2,239 At 30 November 2016 10,528 8,402 4,166 23,096 Additions 541 1,236 597 2,374 Disposals (901) (1,456) (272) (2,629) Exchange differences (45) (145) (27) (217) At 30 November 2017 10,123 8,037 4,464 22,624
Accumulated depreciation At 30 November 2015 10,336 3,864 2,468 16,668 Depreciation charge for the year 705 1,153 418 2,276 Disposals (2,987) (1,211) (238) (4,436) Exchange differences 610 563 315 1,488 At 30 November 2016 8,664 4,369 2,963 15,996 Depreciation charge for the year 793 1,271 452 2,516 Disposals (901) (1,352) (266) (2,519) Exchange differences (27) (79) (9) (115) At 30 November 2017 8,529 4,209 3,140 15,878 Net book value At 30 November 2017 1,594 3,828 1,324 6,746 At 30 November 2016 1,864 4,033 1,203 7,100
A depreciation charge of £2.5 million (2016: £2.3 million) is included in administrative expenses. Disposals included assets with a net book value of £0.1 million (2016: £0.2 million) that were disposed of during the year for £nil. The Group has not leased any assets under finance lease obligations.
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Notes to the Financial Statements For the year ended 30 November 2017
11. Intangible assets
Internally generated Computer Assets under Software and system Goodwill software construction development costs Trademarks Total £'000 £'000 £'000 £'000 £'000 £'000 Cost At 30 November 2015 206,313 8,982 3,644 28,858 71 247,868 Additions - 176 3,797 - - 3,973 Disposals - (109) - (82) - (191) Reclassification - - (7,035) 7,035 - - At 30 November 2016 206,313 9,049 406 35,811 71 251,650 Additions - 9 3,383 - - 3,392 Disposals - - - (68) - (68) Reclassification - - (1,477) 1,477 - - At 30 November 2017 206,313 9,058 2,312 37,220 71 254,974 Accumulated amortisation and impairment At 30 November 2015 205,480 7,761 - 23,450 69 236,760 Amortisation charge for the year - 438 - 3,001 1 3,440 Disposals - (109) - (38) - (147) Reclassification - 334 - (334) - - At 30 November 2016 205,480 8,424 - 26,079 70 240,053 Amortisation charge for the year - 318 - 2,909 1 3,228 Accelerated amortisation and - - - 309 - 309 impairment charge Disposals - - - (2) - (2) At 30 November 2017 205,480 8,742 - 29,295 71 243,588 Net book value At 30 November 2017 833 316 2,312 7,925 - 11,386 At 30 November 2016 833 625 406 9,732 1 11,597
Additions to internally generated An amortisation charge of £3.2 recoverable and impairment is assets included the development of million (2016: £3.4 million) is included required. The amount of impairment key operational systems to improve in administrative expenses. recognised in the current year the customer experience and the totalled £0.3 million (2016: £nil). enhancement of existing assets. Management performed an annual Only costs directly attributable to the impairment review of all internally Disclosures required under IAS 36 development and enhancement generated assets currently in use 'Impairment of Assets' for goodwill of these systems were capitalised or still under construction, and impairment have not been included during the year in accordance with determined that the carrying value on the basis that the goodwill value the strict criteria under IAS 38. of certain assets is no longer is not considered material.
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Notes to the Financial Statements For the year ended 30 November 2017
12. Investment in associate
On 15 February 2017, the Group Gary Elden, Chief Executive Officer, The Group’s interest in HRecTech is acquired a 30% interest in HRecTech and David Rees, Chief Sales Officer, accounted for as an associate using Sandpit Limited (‘HRecTech’) for a are existing minority shareholders in the equity method in the consolidated total consideration of £0.8 million. Sandpit HR Ventures Limited (the financial statements, due to the size HRecTech is involved in business-to- parent company controlling of the shareholding and significant business HR and recruitment in the HRecTech); they were each allotted influence over the business. UK, and it is a private entity that is not shares on a pro-rata basis in HRecTech. The investment in HRecTech is not listed on any public exchange. The Their investment in Sandpit HR Ventures material. The summarised financial investment in HRecTech is consistent Limited was undertaken on an arms’ information of the associate is with the Group’s innovation strategy length basis and there is no conflict of presented below to unlock the potential of disruptive interest. David Rees was appointed technologies, as outlined in the as a director of HRecTech on Strategic Report. 22 June 2017.
30 November 30 November 2017 2016 Group’s share of results of associate £'000 £'000 Aggregate carrying value on acquisition 802 - Group's share of loss (147) - Group's share of other comprehensive (loss)/income - - Group’s share of total comprehensive loss (147) - Aggregate carrying value of the Group’s interests 655 -
The Group has no contingent liabilities or capital commitments relating to its interests in the associate at 30 November 2017.
There are no restrictions on the ability of HRecTech to transfer funds to the Group.
13. Other investments
Group In the prior year, the Group invested and mature on 31 December 2019. in the United States. RoboRecruiter $1.0 million (£0.7 million) in Ryalto The investment in convertible bonds develops technology to automate Limited (‘Ryalto’), a company did not increase the Group the recruitment process, by incorporated in the United Kingdom, shareholding in Ryalto as SThree plc connecting candidates with which aims to be a provider of cannot exercise the conversion rights recruiters and employers. choice in healthcare staffing by until the bonds mature or, if earlier, The Group classifies its equity and incorporating technology into the after Ryalto successfully completes debt investments in Ryalto and healthcare market and transforming the Qualifying Fund Raising of $5 million. RoboRecruiter as available for sale the way healthcare professionals run At 30 November 2017, the Group financial assets and, since both their working lives. holds 18% of the issued share capital companies are unlisted, the fair value of Ryalto, with no ability to exercise In October 2017, the Group made a of the investments cannot be readily power or significant influence. further investment of $0.5 million (£0.4 determined. Accordingly, these million) in Ryalto, by purchasing ten In May 2017, the Group acquired financial assets are initially convertible notes, with a principal a 19.7% interest in RoboRecruiter recognised at cost with subsequent amount of $50,000 each. The notes Inc. (‘RoboRecruiter’) (for $17,000 measurement at cost less provision carry an interest rate of 10% per annum (£14,000)), a company incorporated for impairment.
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Notes to the Financial Statements For the year ended 30 November 2017
13. Other investments (continued)
Company
Cost £’000 At 30 November 2015 330,406 Additions - Settlement of vested tracker shares 4,586 - Relating to unvested tracker shares 162 Capital contribution relating to share-based payments (IFRS 2) 2,011 At 30 November 2016 337,165 Additions - Settlement of vested tracker shares 3,253 Capital contribution relating to share-based payments (IFRS 2) 2,589 Disposal of investments (1,196)
At 30 November 2017 341,811
Provision for impairment At 30 November 2015 6,855 Provision made during the year 40,077 At 30 November 2016 46,932 Provision made during the year 88,048 At 30 November 2017 134,980 Net carrying value At 30 November 2017 206,831 At 30 November 2016 290,233
During the year, the Company investment held in the subsidiaries. In review and recognised an impairment settled a number of vested tracker 2017, the Company recognised an charge of approximately £88 million shares by awarding SThree plc shares increase in investments in its in relation to its investment in SThree (note 20(b)), resulting in an increase subsidiaries of £2.6 million (2016: UK Holdings Limited. The impairment in the Company’s investment in £2.0 million) relating to such share was mainly attributable to our UK relevant subsidiary businesses. options and awards. trading business, SThree Partnership LLP, controlled by SThree UK Holdings The Company also acquired certain A number of Group entities were Limited, as its trading performance unvested tracker shares where liquidated in 2017. As a result, the continued to deteriorate (for more employees left the business prior to Company has written off £1.2 million details refer to the Strategic Report, reaching the pre-agreed holding of investments in its subsidiaries. UK & Ireland, Performance in 2017). period. The investments recognised in the The impairment charge represented Company’s accounts related to The details of the Group accounting a difference between the recovera- share options and awards previously policy for tracker share arrangements ble amount and the carrying value granted to employees of subsidiary are included in note 1. of the investment as at the date of undertakings. IFRS 2 requires that any options or assessment. The recoverable amount was calculated as the higher of awards granted to employees of Investment impairment SThree Partnership LLP’s ‘fair value subsidiary undertakings without During the year, the Company less costs of disposal’ (‘FVLCD’) and reimbursement of the subsidiary performed an investment impairment increase the carrying value of the its ‘value in use’ (‘VIU’). The FVLCD
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Notes to the Financial Statements For the year ended 30 November 2017
13. Other investments (continued) valuation was based on an EBITDA The impairment charge involves (iii) increase a pre-tax WACC by multiple of 6.0. judgements and estimates and 1.0%. This would result in a further could change if key assumptions vary. impairment of £0.4 million. The SThree Partnership LLP VIU The Group considered reasonably valuation was determined from possible changes to assumptions: For entities that were liquidated, the calculated pre-tax cash flows FVLCD was based on the net assets/ forecast to be generated by the UK (i) apply a 5% reduction in forecast liabilities value at the time of the entity in the next five years and in GP. This would result in further assessment. perpetuity. Cash flows were discounted impairment of £23.3 million. to present value using a pre-tax (ii) apply a 5% reduction to forecast A full list of the Company’s subsidiaries weighted average cost of capital EBITDA. This would result in a that existed at 30 November 2017 is (‘WACC’) of 11.6% and a long term further impairment of £4.4 million. provided in note 25(a). growth rate of 2.0%.
14. Trade and other receivables
Group Company 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 Trade receivables 154,308 132,636 - - Provision for impairment (1,555) (1,789) - -
Trade receivables - net 152,753 130,847 - -
Other receivables 2,889 2,225 1,132 1,237 Amounts due from subsidiaries - - 3,891 - Prepayments 5,935 4,379 165 270 Accrued income 64,981 51,718 - - 226,558 189,169 5,188 1,507
Other receivables include £0.8 million Accrued income represents the unapproved timesheets) (note 16). (2016: £0.9 million) for loans given to Contract revenue earned but not Trade receivables and cash and certain employees in previous years invoiced at the year end. It is cash equivalents are deemed to towards their subscription for tracker based on the value of the unbilled be current loans and receivables shares (note 24(d)). Tracker share timesheets from the contractors for for disclosure under IFRS 7 ‘Financial loans are unsecured and charged the services provided up to the year Instruments - Disclosures’ (note 24). interest at a rate of 3% (2016: 3%). end. The corresponding costs are No interest is charged on trade No such new tracker share loans shown within trade payables (where receivables. were given to employees during the contractor has submitted an the current year. invoice) and within accruals (in respect of unsubmitted and
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Notes to the Financial Statements For the year ended 30 November 2017
14. Trade and other receivables (continued)
Group 30 November 30 November 2017 2016 Provision for impairment of trade receivables £'000 £'000 At the beginning of the year 1,789 1,632 Charge for the year 339 712 Bad debts written off (250) (261) Reversed as amounts recovered (314) (562) Exchange differences (9) 268 At the end of the year 1,555 1,789
Other classes within trade and other receivables do not contain impaired assets. Management considers that the carrying value of trade and other receivables is approximately equal to their fair values and they are deemed to be current assets.
See note 24 for further information.
15. Cash and cash equivalents
Group Company 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 Cash at bank 21,338 15,707 6,985 394 Bank overdraft (3,717) (5,685) - -
Net cash and cash equivalents per the statements 17,621 10,022 6,985 394 of cash flows
Cash and cash equivalents comprise The Group has cash pooling are reported on a net basis in the cash and short-term bank deposits arrangements with legally statement of financial position. with an original maturity of three enforceable rights to set-off cash and Other bank overdrafts are shown months or less, net of outstanding overdraft balances. Where there is separately as above and in the bank overdrafts. The carrying amount an intention to settle on a net basis, statement of financial position. of these assets is approximately cash and overdraft balances relating equal to their fair values. to the cash pooling arrangements
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Notes to the Financial Statements For the year ended 30 November 2017
16. Trade and other payables
Group Company 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 Trade payables 55,054 49,157 - - Amounts due to subsidiaries (note 23) - - 17,183 10,139 Other taxes and social security 12,604 9,726 356 311 Other payables 3,439 2,718 299 647 Accruals 88,459 77,258 1,131 1,074
159,556 138,859 18,969 12,171
The fair values of trade and other Amounts due to subsidiaries are Accruals include amounts payable payables are not materially different subject to annual interest at a rate of to contractors in respect of from those disclosed above. 1.3% (2016: 1.3%) above three month unsubmitted and unapproved LIBOR of the respective currencies in timesheets (note 14). Trade and other payables are which balances are denominated. predominantly interest free.
17. Borrowings
The Group has a committed revolving month LIBOR. The average interest maintain financial ratios over interest credit facility (‘RCF’) of £50 million rate paid on the RCF during the year cover, leverage and guarantor cover along with an uncommitted £20 million was 1.5% (2016: 1.8%). The Group (note 24(c)). The Group has been in accordion feature in place with also has an uncommitted £5 million compliance with these covenants HSBC and Citibank, giving the overdraft facility with RBS. throughout the year. Group an option to increase its total At the year end the Group and the The Group’s exposure to interest borrowings under the facility up to Company had drawn down £12 rates, liquidity, foreign currency £70 million. The RCF expires in May million (2016: £nil) on these facilities. and capital management risks 2019. The funds borrowed under the is disclosed in note 24. facility bear interest at an annual The RCF is subject to certain rate of 1.3% (2016: 1.3%) above three covenants requiring the Group to
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Notes to the Financial Statements For the year ended 30 November 2017
18. Provisions for liabilities and charges
Group Tracker share Dilapidations Restructuring liability Legal Total £'000 £'000 £'000 £'000 £’000 At 30 November 2015 1,823 941 3,614 334 6,712 Charged/(released) to the income statement 254 23 (115) 459 621 Utilised during the year (293) (860) (662) (13) (1,828) New tracker share consideration - - 355 - 355
At 30 November 2016 1,784 104 3,192 780 5,860 Reclassified from accruals - - - 794 794 Charged/(released) to the income statement 32 6,740 (167) 1,636 8,241 Utilised during the year (355) (78) (352) (3) (788) New tracker share consideration - - 417 - 417
At 30 November 2017 1,461 6,766 3,090 3,207 14,524
30 November 30 November 2017 2016 Analysis of total provisions £'000 £'000 Current 12,352 4,953 Non-current 2,172 907 14,524 5,860
Provisions are not discounted as professional estimates of the likely £5.6 million (2016: £nil) Management believes that the costs on vacating properties based b) Restructure of our Hong Kong effect of the time value of money is on the current conditions of the office: £0.4 million (2016: £nil) immaterial. The provisions are properties. The provision has been c) Management restructuring: measured at cost which approximates spread over the relevant lease term. £0.7 million (2016: £nil) to the present value of the expenditure required to settle the obligation. Restructuring The provisions have been made The provision relates to restructuring primarily to cover future redundancy Dilapidations exercises undertaken by the Group, payments. The Group is obliged to pay for including the following: The liability in regards to dilapidation dilapidations at the end of its tenancy a) Relocation and restructuring of and restructuring provisions is of various properties. Provision has central support functions from expected to crystallise as follows: been made based on independent London to Glasgow (see note 3):
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Notes to the Financial Statements For the year ended 30 November 2017
18. Provisions for liabilities and charges (continued)
30 November 30 November 2017 2016 £'000 £'000 Within one year 6,055 981 One to five years 1,344 549 After five years 828 358
8,227 1,888
Tracker share liability During the year £0.4 million (2016: including employee litigation, The provision relates to an obliga- £0.7 million) of the provision was compliance with employment laws tion to repay amounts received or utilised, principally in relation to settled and regulations, and open enquiries receivable in relation to subscriptions tracker shares. New consideration with tax and pension authorities. The for tracker shares awarded to senior of £0.4 million (2016: £0.4 million) provision relates to separate claims in individuals under the terms of the represents subscriptions received a number of different geographic tracker share arrangements (note against the allotment of new tracker regions and represents our most 1). The timing of economic outflow share awards in the year. probable estimate of the likely is subject to the factors governing outcome of each of the disputes. The each tracker share and is considered Legal timing of economic outflow is subject to be within one year. The provision relates to various to the factors governing each case. ongoing legal and other disputes
19. Deferred tax
Group Accelerated tax Share-based Tax depreciation payments losses Provisions Total
£'000 £'000 £'000 £'000 £’000 At 30 November 2015 (42) 894 - 928 1,780 Credit/(charge) to income statement for the year 262 (273) 781 (43) 727 Prior year (charge)/credit to income statement for (578) - 28 356 (194) the year Adjustment due to tax rate changes (41) 4 - 78 41 Charged directly to equity - (38) - - (38) Exchange differences (54) 28 46 165 185
Exchange differences At 30 November 2016 (453) 615 855 1,484 2,501 Credit/(charge) to income statement for the year 309 374 (190) 640 1,133 Prior year credit to income statement for the year 42 - 270 315 627 Adjustment due to tax rate changes 8 (5) (6) (30) (33) Credit directly to equity - 62 - - 62 Exchange differences 20 (19) 14 (106) (91)
At 30 November 2017 (74) 1,027 943 2,303 4,199
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Notes to the Financial Statements For the year ended 30 November 2017
19. Deferred tax (continued)
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is an analysis of the deferred tax balances for financial reporting purposes:
30 November 30 November 2017 2016 £'000 £'000 Deferred tax assets 4,460 3,105 Deferred tax liabilities (261) (604)
Net deferred tax assets 4,199 2,501
Deferred tax assets that are expected tax asset of £0.9 million (2016: £0.9 b) US taxes, which saw our effective to be recovered within one year are million) was recognised in respect tax rate reduce by circa 1%. Our US £2.9 million (2016: £1.8 million) and of losses of £2.9 million (2016: £2.9 effective tax rate is driven by the deferred tax liabilities that are million). No deferred tax asset was federal rate, together with state and expected to be settled within one recognised in respect of the city taxes, and hence the profit mix year are £26,000 (2016: £43,000). remaining £25.9 million (2016: across the US will naturally drive minor £26.4 million) losses. changes in our US effective tax rate Deferred tax assets are recognised year on year. for carry-forward tax losses to the Included in unrecognised tax losses extent that the realisation of the are losses of £4.6 million (2016: Non-adjusting event after the related tax benefit through future £6.1 million) subject to expiry. Of this reporting year taxable profits from the respective amount, £3.9 million expires over the US Tax Reform legislation passed jurisdictions is probable. In assessing course of the next five years and the on 20 December 2017 sees the whether to recognise deferred tax balance of £0.7 million up to 2036. reduction in the federal corporate assets, the Group has considered Other unrecognised tax losses of tax rate from 35% to 21%. This will both current and the forecast trading £21.3 million (2016: £20.3 million) have an overall positive impact on performance in these territories and may be carried forward indefinitely. our business with the estimated the expectations regarding the levels annual tax saving of £1million at The reduction in the deferred tax of profitability that can be achieved. current levels of profitability. However, asset of £33k arising from changes the full benefit of this will largely be At the reporting date, the Group in tax rates is primarily driven by the offset in the first year by the reduction has unused tax losses of £28.8 million reduction in a) UK taxes from the in the deferred tax asset. (2016: £29.3 million) available for average rate used for the year of offset against future profits. A deferred 19.33% to the closing rate of 19%, and
Company
The Company’s deferred tax asset relates to the equity-settled share-based payments. £'000 At 30 November 2015 353 Charged to income statement for the year (113) Charged directly to equity (11)
At 30 November 2016 229 Charged to income statement for the year 56 Charged directly to equity 13
At 30 November 2017 298
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Notes to the Financial Statements For the year ended 30 November 2017
20. Share capital
Group and Company (a) Share capital Share Treasury Number of Capital Reserve Issued and fully paid ordinary shares £'000 £'000 At 30 November 2015 129,124,279 1,295 (1,318) Issue of new shares 1,748,120 17 - Repurchase of own shares (2,323,577) - (6,845) Utilisation of treasury shares 510,081 - 1,720
At 30 November 2016 129,058,903 1,312 (6,443) Issue of new shares 473,334 5 - Repurchase of own shares (1,478,788) - (7,797) Utilisation of treasury shares 1,899,032 - 5,705
At 30 November 2017 129,952,481 1,317 (8,535)
Share issue 1,478,788 of its own shares to be held in the same manner as shares held During the year 473,334 (2016: as treasury shares (2016: 2,323,577). in the treasury reserve by SThree plc 1,748,120) new ordinary shares were The average price paid per share and are, therefore, included in the issued, resulting in a share premium was 312 pence (2016: 295 pence) financial statements as part of the of £1,400,000 (2016: £4,266,000). Of with a total consideration amounting treasury reserve for the Group. the shares issued, 394,988 (2016: to £4,618,000 (2016: £6,845,000). During the year, the EBT was funded 1,495,964) were issued to tracker During the year 1,000,000 shares entirely by the Company. All SThree shareholders on settlement of vested (2016: 510,081) were transferred from plc shares purchased directly by tracker shares, with the remaining treasury for LTIP exercise and 899,032 the EBT are shown as a reduction in issued pursuant to the exercise of (2016: nil) were issued to tracker shareholders’ equity. The average share awards under the Save As You share holders on settlement of vested price paid by the EBT per share was Earn (SAYE) scheme. tracker shares. At the year end, 344 pence (2016: nil) with total 1,766,836 (2016: 2,187,080) shares consideration amounting to were held in treasury. Treasury reserve £3,179,000 (2016: £nil). Treasury shares represent SThree plc For accounting purposes shares At the year end, 1,644,589 (2016: shares repurchased and available for held in the EBT to meet the future 165,357) shares were held in the specific and limited purposes. requirements of the employee share- Group’s EBT. During the year, SThree plc purchased based payment plans are treated
(b) Share-based payments Tracker share awards in subsidiary companies As described in note 1, the Group and share premium for new issue, LTIP, SAYE and other share schemes makes tracker share awards in respect and credit to capital reserves for The Group has a number of share of certain subsidiary businesses to treasury shares, with a corresponding schemes to incentivise its Directors senior individuals who participate in debit to the Group’s retained earnings and employees. All schemes are the development of those businesses. and provision for tracker share liability. treated as equity-settled (except SIP) as the Group has no legal or During the year, the Group settled The Group also issued new tracker constructive obligation to repurchase certain vested tracker shares for a share awards during the year for or settle the options in cash. The total consideration of £3.3 million subscription value of £417,000 (2016: schemes are detailed below. (2016: £4.6 million) by issue of new £355,000), of this £152,000 remained shares or using treasury shares unpaid at the year end (2016: purchased from the market. This £48,000). resulted in a credit to share capital
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Notes to the Financial Statements For the year ended 30 November 2017
20. Share capital (continued)
(b) Share-based payments (continued) LTIP, SAYE and other share schemes The Group has a number of share schemes to incentivise its Directors and employees. All schemes are treated as equity- settled (except SIP) as the Group has no legal or constructive obligation to repurchase or settle the options in cash. The schemes are detailed below.
30 November 2017 30 November 2016
Charge Number of Charge Number of Vesting Valuation Performance Scheme (£'000) share options (£'000) share options period Expiry date method metrics LTIP 3,010 5,725,469 2,487 4,624,485 3 years 10 years Montecarlo Incremental model EPS growth/ TSR ranking against comparator group SAYE 246 1,187,298 336 394,172 3 years 6 months Binomial None after 3 year vesting period
Sub total 3,256 6,912,767 2,823 5,018,657 SIP 55 N/A 70 N/A 1 year N/A N/A None Total 3,311 6,912,767 2,893 5,018,657
Long Term Incentive Plan (LTIP) The conditions of the LTIP are provided in the Directors’ Remuneration Report. Number of options At 30 November 2016 4,624,485 Granted 2,269,834 Exercised (429,588) Forfeited (739,262)
At 30 November 2017 5,725,469
Out of the 5,725,469 options outstanding LTIP were satisfied by shares held in The related transaction costs were (2016: 4,624,485), 666,912 options were the EBT. The related weighted average negligible. The share options had a exercisable (2016: 470,277). Options share price at the time of exercise was weighted average exercise price exercised during the year under the £3.21 (2016: £2.91) per share. of £nil (2016: £nil).
The 2017 share options granted in 2017 under the Group LTIP scheme were valued as follows: 2017 2016 Weighted average fair value (£) 2.86 2.42 Key assumptions used: Share price at grant date (£) 3.12 2.97 Expected volatility* 30.7% 25.6% Annual risk-free interest rate 0.14% 0.70% Expected life (years) 3 3
* Expected volatility is determined by using the historic daily volatility of Sthree plc’s shares as measured over a period commensurate with the expected life of the share options, i.e. three years.
Other schemes The SAYE, SIP and EBT arrangements are not deemed material for further disclosure.
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Notes to the Financial Statements For the year ended 30 November 2017
21. Contingencies
The Group has contingent liabilities unlikely that any significant liability been provided against at the date in respect of legal claims arising in will arise. The Directors are of the view of these financial statements. the ordinary course of business. Legal that no material losses will arise in advice obtained indicates that it is respect of legal claims that have not
22. Commitments
Operating leases The Group leases various office The Group also leases motor vehicles At the end of the reporting year, the properties under non-cancellable and printers under non-cancellable Group had outstanding commitments operating lease arrangements. The operating leases which are included for future minimum lease payments lease terms are between one to 12 in the ‘other’ category below. The under non-cancellable operating years, and the majority of the lease lease term is typically three years leases, which fall due as follows: arrangements are renewable at for motor vehicles and four years the end of the lease period at for printers. market rate.
Land and Buildings Other 30 November 30 November 30 November 30 November 2017 2016 2017 2016 £'000 £'000 £'000 £'000 Within one year 12,963 11,710 1,321 1,037 One to five years 39,297 34,112 1,432 1,058 After five years 13,910 17,960 - -
66,170 63,782 2,753 2,095
Capital commitments At the end of the reporting year, the Group contracted capital expenditure but not yet incurred of £0.4 million (2016: £0.1 million).
Guarantees At the end of the reporting year, the Group/SThree plc has bank guarantees in issue for commitments which amounted to £3.6 million (2016: £2.7 million).
23. Related party transactions
Group Balances and transactions with members of the GMB, who are Remuneration of key management subsidiaries have been eliminated on deemed to be key management personnel (‘KMP’) consolidation and are not disclosed personnel, are disclosed below. The Group’s key management in this note. Transactions between comprises members of the GMB, the Group and its Directors and other members of the Board of
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Notes to the Financial Statements For the year ended 30 November 2017
23. Related party transactions (continued)
Group Remuneration of key management remuneration, as determined by the Total number of KMPs for the year personnel (‘KMP’) (continued) SThree plc Remuneration Committee was 21 (2016: 21). Total remuneration Directors and key managers who in accordance with its stated for members of key management are deemed to influence the day policy, are given in the Directors’ is detailed below: to day activities. Details of Directors’ Remuneration Report.
30 November 30 November 2017 2016 £'000 £'000 Short-term employee benefits 7,950 6,570 Share-based payments 2,169 1,655 Post-employment benefits 324 312 Termination benefits 891 -
11,334 8,537
During the year, the Group acquired Sandpit HRVentures Limited (the parent of interest. David Rees was appointed a 30% interest in HRecTech Sandpit company controlling HRecTech); as a director of HRecTech on Limited (‘HRecTech’) for a total they were each allotted shares on 22 June 2017. consideration of £0.8 million. a pro-rata basis in HRecTech. Their During the year, there were no related investment in Sandpit HRVentures Gary Elden, Chief Executive Officer, party transactions between the Limited was undertaken on an arms’ and David Rees, Chief Sales Officer, Group and HRecTech. length basis and there is no conflict are existing minority shareholders in
Company The Company has related party is disclosed in the Directors’ the Directors’ Remuneration Report relationships with its subsidiaries, Remuneration Report. The Company and below. Details of transactions with members of its Board and key did not have any transactions with between the Company and other managers. The Directors’ remuneration the Directors during the financial related parties are disclosed below. which they receive from the Company year other than those disclosed in
30 November 30 November 2017 2016 Transactions with the related parties during the year £'000 £'000 Investments in subsidiaries (note 13) (4,646) (6,759) Impairment of investments in subsidiaries (note 13) (88,048) (40,077) Loans and advances received from subsidiaries 7,044 1,921 Loans and advances given to subsidiaries 3,891 - Loans repaid by Directors 1 13 Loans repaid by other KMP 18 32 Interest income received from subsidiaries 16 37 Interest paid by subsidiaries (202) (28) Dividend income received from subsidiaries 22,544 24,665
No purchase or sales transactions were entered into between the Company and its subsidiaries.
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Notes to the Financial Statements For the year ended 30 November 2017
23. Related party transactions (continued)
30 November 30 November 2017 2016 Year end balances arising from transactions with related parties £'000 £'000 Investments in subsidiaries 206,831 290,233 Amounts due to subsidiaries (17,183) (10,139) Amounts receivable from subsidiaries - net 3,891 - Amounts receivable from Directors 188 189 Amounts receivable from other KMP 238 256
24. Financial instruments and financial risk management
Financial risk factors The Group reports in Sterling and risks arising from operations and cost of capital. pays dividends out of Sterling profits. financing of subsidiaries. At the year In order to maintain or adjust the The role of the Group’s corporate end, the Group has net foreign capital structure, the Group may treasury function is to manage and exchange swaps of: AED (4.3 million), adjust the amount of dividends monitor external and internal funding NOK 2.4 million, AUD (0.5 million), paid to shareholders, delay or requirements and financial risks in CHF (0.5 million), HKD 12.8 million, JPY reduce the settlement of vested support of corporate objectives. (92.3 million), SGD 2.0 million, CAD tracker shares, sell assets to Treasury activities are governed by (0.3 million) and USD 0.2 million being reduce debt, return capital to policies and procedures approved an overall equivalent of £0.3 million shareholders or issue new shares, by the Board. A treasury manage- (2016: overall equivalent of £7.1 mil- subject to applicable rules. The ment committee, chaired by the lion). The contracts were mainly taken Group’s policy is to settle the Chief Financial Officer, meets on out close to the year end date for a vested tracker shares in the a monthly basis to review treasury period of 3 to 31 days (2016: 1 to 22 Company’s shares. During the activities and its members receive days) and they had net fair value of year, the vested tracker shares management information relating to circa £(5,768) (2016: £40,000) at the were settled by issue of new treasury activities. The Group’s inter- year end, which is insignificant. shares or using treasury shares nal auditors periodically review the purchased from the market treasury internal control environment The Group is exposed to a number (note 20(a)). and compliance with policies and of different financial risks including procedures. capital management, foreign The capital structure of the currency rates, liquidity, credit and Group consists of equity Each year, the Board reviews the interest rates risks, which were not attributable to owners of the Group’s currency hedging strategy materially changed from previous parent of £80.7 million (2016: to ensure it is appropriate. The Group year. The Group’s objective and £75.7 million), comprising share does not hold or issue derivative strategy in responding to these risks capital, share premium, other financial instruments for speculative are set out below and did not change reserves and retained earnings purposes and its treasury policies materially from previous year. as disclosed in the statement of specifically prohibit such activity. All (a) Capital risk management changes in equity and net cash of transactions in financial instruments The Group’s objectives when £17.6 million (2016: £10.0 million), are undertaken to manage the risks managing capital are to comprising cash and cash arising from underlying business safeguard the Group and its equivalents (note 15). activities, not for speculation subsidiaries’ ability to continue Except for compliance with Group treasury enters into a limited as going concerns in order to certain bank covenants (note amount of derivative transactions, provide returns for shareholders 24(c)), the Group is not subject principally currency swaps and and benefits for other stakeholders to any externally imposed forward currency contracts, with the and to maintain an optimal capital requirements. purpose of managing the currency capital structure to minimise the
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Notes to the Financial Statements For the year ended 30 November 2017
24. Financial instruments and financial risk management (continued)
Financial risk factors (continued) (b) Foreign currency risk The Group generally converts RBS. £12 million (2016: £nil) was management foreign currency balances into drawn down against these The Group uses Sterling as its Sterling to manage its cash flows. facilities at the year end. presentation currency. It Foreign currency sensitivity The RCF expires in May 2019 and undertakes transactions in a analysis requires, amongst other matters, number of foreign currencies. The Group is mainly exposed compliance with the following Consequently, exposures to to the Euro and US Dollar. If the three financial covenant ratios exchange rate fluctuations Euro or US Dollar strengthened which are tested twice a year do arise. Such exchange rate against Sterling by a movement on the basis of year end and movements affect the Group‘s of 10%, the anticipated impact half year financial data: transactional revenues, cost of on the Group‘s results in terms (i) Interest Cover: interest and sales, the translation of earnings of translational exposure would dividend cover shall not be and the net assets/liabilities of be an increase in profit before less than the ratio of 1.2:1 at its overseas operations. taxation of £4.7 million and £1.7 any time; The Group is also exposed to million (2016: £4.3 million and £0.8 (ii) Leverage: the ratio of total foreign currency risks from the million) respectively, with a similar net debt on the last day of value of net investments decrease if the Euro or US Dollar a period to EBITDA in respect outside the United Kingdom. The weakened against Sterling by 10%. of that period shall not intercompany loans which are exceed the ratio of 2:1; and treated as net investments in (c) Liquidity risk management The Group’s treasury function (iii) Guarantor Cover: the foreign operations are not planned centrally co-ordinates relationships aggregate adjusted EBITDA to be settled in the foreseeable with banks, manages borrowing and gross assets of all the future as they are deemed to requirements, foreign exchange Guarantor subsidiaries must be a part of the investment. needs and cash management. at all times represent at least Therefore, exchange differences The Group has access to a 85% of the adjusted EBITDA arising from the translation of the committed RCF of £50 million and gross assets of the Group net investment loans are taken along with an uncommitted as a whole. into equity. £20 million accordion feature in The table below shows the The Group’s businesses generally place with HSBC and Citibank, maturity profile of the financial raise invoices and incur expenses giving the Group an option to liabilities which are held at in their local currencies. Local increase its total borrowings under amortised cost based on the currency cash generated is the facility up to £70 million. The contractual amounts payable remitted via intercompany Group also has an uncommitted on the date of repayment: transfers to the United Kingdom. £5 million overdraft facility with
Trade and other payables
Group Company
£'000 £'000 At 30 November 2017 Within one year 146,952 18,613
At 30 November 2016 Within one year 129,133 11,860
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Notes to the Financial Statements For the year ended 30 November 2017
24. Financial instruments and financial risk management (continued)
(d) Credit risk management Credit risk refers to the risk that a The Group mitigates its credit risk from The Group does not typically counterparty will default on its available for sale financial investments renegotiate the terms of trade contractual obligations resulting in by keeping the value of the receivables, hence the outstanding financial loss to the Group. investments very low and periodically balance is included in the analysis reviewing the financial performance based on the original payment In the normal course of business, the of the relevant undertakings. terms. There were no significant Group participates in cash pooling renegotiated balances outstanding arrangements with its counterparty The Group mitigates its credit risk from at the year end. bank. The maximum exposure to a trade receivables by using a credit single banking group for deposits rating agency to assess new clients Trade receivables of £124.7 million and funds held on account as at the and payment history to assess further (2016: £106.6 million) were neither year end was £9.3 million (2016: £4.4 credit extensions to existing clients. past due nor impaired. million). The Group will not accept In addition, the spread of the client At 30 November 2017, trade any counterparty bank for its deposits base (circa 9,000 clients) helps to receivables of £26.3 million (2016: unless it has been awarded a minimum mitigate the risk of individual client £22.9 million) were past due but not recognised credit rating of A3/ failure having a material impact impaired. These pertain to a number Prime-2 (Moody’s). Some local banks on the Group. of unrelated customers for whom in emerging markets may have lower Trade receivables of the Group are there is no recent history of default. ratings but the funds at risk will be analysed in the table in note 24(d). Trade receivables of £3.4 million small. The Group will permit exposures With respect to the trade receivables (2016: £3.1 million) were impaired, with individual counterparty banks that are neither impaired nor past against which a provision of and exposure types up to due, there are no indications as of £1.6 million (2016: £1.8 million) pre-defined limits as part of the the reporting date that the debtors was recorded. Group treasury policy. Exposure to all will not meet their payment transaction limits are monitored daily. obligations.
2017 2016 Trade receivables £'000 £'000 Neither impaired nor past due 124,654 106,635 Ageing of past due but not impaired under 30 days 19,070 17,007 31 to 60 days 5,271 4,449 61 to 90 days 1,930 1,491 Ageing of impaired under 90 days 593 81 over 90 days 2,790 2,973 Provision for impairment (1,555) (1,789) Total 152,753 130,847
The majority of the accrued income of individuals (2017: 22 individuals; when their first tracker share is settled, balance is less than 60 days old and 2016: 28 individuals) and none of when they receive dividends or if nothing is over 90 days past due. the individuals hold loans of material they leave the business. amounts. Exposure to loans from indi- The Group’s credit risk from loans viduals is regularly monitored and the (e) Interest rate risk management given to certain tracker shareholders individuals are asked to settle all or a The Group is exposed to interest rate (note 14) is mitigated by the fact that portion of their outstanding balances risk from the possibility that changes the loans are spread over a number
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Notes to the Financial Statements For the year ended 30 November 2017
24. Financial instruments and financial risk management (continued)
(e) Interest rate risk management (continued) in interest rates will affect future cash exposure to variations in interest rates. minimal. 100 basis points was used flows or the fair values of its financial on the assumption that applicable Taking into consideration all variable instruments, principally financial liabili- interest rates are not likely to move rate borrowings and bank balances ties. The Group finances its operations by more than this basis given the at 30 November 2017, if the interest through a mixture of retained profit pattern of interest rate movements in rate payable or receivable moved and the revolving credit facility. recent years. by 100 basis points in either direction, The Group does not hedge the the effect to the Group would be
(f) Interest rate profile of financial assets/(liabilities) At the reporting date, the Group As part of the presentation of market trading that are measured at fair and the Company did not have any risks, IFRS 7 requires disclosure on value. Two investments in unlisted significant financial liabilities exposed how hypothetical changes in risk entities, Ryalto and RoboRecruiter, to interest rate risk except for the variables affect the price of financial (note 13) are held at cost less any revolving credit facility (note 17). The instruments. Important risk variables impairment. Therefore there are no only financial assets which accrued are stock exchange prices or indices. financial instruments which would be interest were cash and cash At 30 November 2017, the Group materially impacted by risk variables equivalents (note 15) with maturity and the Company do not hold any affecting the price of financial of less than a year and were subject investments to be classified as instruments. to floating interest income. available for sale or as held for
(g) Currency profile of net cash and cash equivalents (including bank overdrafts) Functional currency of Group operations: Net cash and cash equivalents Other Sterling Euro US Dollar currencies Total At 30 November 2017 £'000 £'000 £'000 £'000 £'000 Functional currency Sterling 15,190 (18,417) 2,993 8,656 8,422 Euro 1,358 2,231 199 - 3,788 US Dollar - - 2,762 - 2,762 Other 36 - 827 1,786 2,649 Total 16,584 (16,186) 6,781 10,442 17,621
At 30 November 2016 £'000 £'000 £'000 £'000 £'000 Functional currency Sterling 2,858 270 208 362 3,698 Euro 381 1,664 194 - 2,239 US Dollar - - 928 - 928 Other 36 - 663 2,458 3,157 Total 3,275 1,934 1,993 2,820 10,022
Other foreign currencies held by the Indian Rupee, Japanese Yen, Kuwait United Arab Emirates Dirham. Group include: Australian Dollar, Dinar, Malaysian Ringgit, Russian The Company does not have a Bahrain Dinar, Canadian Dollar, Ruble, Singapore Dollar, Saudi Arabia material exposure to other currencies. Chinese Renminbi, Hong Kong Dollar, Riyal, Swiss Franc, Thailand Baht and
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Notes to the Financial Statements For the year ended 30 November 2017
24. Financial instruments and financial risk management (continued)
(h) Fair values of financial assets and liabilities The carrying amount of the Group Summary of methods and assumptions financial assets and financial liabilities approximates their fair value. Short-term deposits and Approximates to the carrying amount because borrowings of the short maturity of these instruments. Fair value is the amount at which a financial instrument could be Cash and cash equivalents Approximates to the carrying amount. exchanged in an arm’s length transaction between informed and Receivables and payables Approximates to the carrying amounts for willing parties, other than a forced current balances; there are no material or liquidation sale, and excludes longer term balances. accrued interest. Financial instruments Original cost or market valuation at the end Where available, market values have of the reporting year. been used to determine fair values. Where market values are not available, the investments are held at the initial cost less accumulated impairment or at fair value that has been calculated by discounting expected cash flows at prevailing interest rates and by applying year end exchange rates. A summary of the assumptions used for each category of financial instrument is set out below.
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Notes to the Financial Statements For the year ended 30 November 2017
25(a). List of subsidiaries
Full list of SThree plc’s subsidiaries at 30 November 2017 and the Group percentage of ordinary share capital is as follows:
Country of Name of undertaking % incorporation Principal activities Registered office SThree Australia Pty Limited 100 Australia Recruitment Level 9, 1 Market Street, Sydney, NSW 2000, Australia
SThree Austria GmbH 100 Austria Recruitment Mooslackengasse 17, 1190, Vienna, Austria
Computer Futures Solutions 100 Belgium Recruitment Kreupelenstraat 9, 5de en 6de verdieping, B-1000 NV Brussel, Belgium
Huxley Associates Belgium 100 Belgium Recruitment Kreupelenstraat 9, 5de en 6de verdieping, B-1000 NV Brussel, Belgium
SThree Services NV 100 Belgium Recruitment Kreupelenstraat 9, 5de en 6de verdieping, B-1000 Brussel, Belgium
SThree Belgium NV 100 Belgium Recruitment Kreupelenstraat 9, 5de en 6de verdieping, B-1000 Brussel, Belgium
SThree Canada Limited 100 Canada Recruitment Sun Life Plaza West Tower, 144-4 Avenue SW, Suite 1600, Calgary AB T2P 3N4, Canada
SThree SAS 100 France Recruitment 20 Avenue André Prothin, La defense 4 - Europlaza 92400 Courbevoie, Paris, France
SThree Holdings GmbH 100 Germany Holding com- Goetheplatz 5-11, 60313, Frankfurt am Main, pany Germany
SThree GmbH 100 Germany Recruitment Goetheplatz 5-11, 60313, Frankfurt am Main, Germany
SThree Temp Experts GmbH 100 Germany Recruitment Goetheplatz 5-11, 60313, Frankfurt am Main, Germany
SThree Limited 100 Hong Kong Recruitment 10th Floor, MassMutual Tower, 33 Lockhart Road, Wan Chai, Hong Kong
SThree India Private Limited 100 India Under liquidation 1st Floor, Trade Centre, Bandra Kurla Complex, Bandra (E), Mumbai, 400 051, India
SThree Staffing Ireland 100 Ireland Recruitment 3rd Floor, 80, Harcourt Street, Dublin, Ireland Limited
SThree Ireland Dollar 100 Ireland Holding 3rd Floor, 80, Harcourt Street, Dublin, Ireland Limited company
SThree K.K. 100 Japan Recruitment Ginza Wall Building, 13-16 Ginza 6-Chome, Chuo-ku, Tokyo, Japan
SThree Finance Euro S.à r.l. 100 Luxembourg Holding 5th Floor, 2 rue de Fosse, L-1536, Luxembourg company
SThree Dollar S.à r.l. 100 Luxembourg Holding 5th Floor, 2 rue de Fosse, L-1536, Luxembourg company
SThree S.à r.l. 100 Luxembourg Recruitment 5th Floor, 2 rue de Fosse, L-1536, Luxembourg
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Notes to the Financial Statements For the year ended 30 November 2017
25(a). List of subsidiaries (continued)
Country of Name of undertaking % incorporation Principal activities Registered office Progressive Global Energy 49 Malaysia Recruitment 10th Floor, Menara Hap Seng, No 1&3 Jalan P Sdn. Bhd. Ramlee, 50250 Kuala Lumpur, Malaysia
SThree Holdings BV 100 Netherlands Recruitment Gustav Mahlerlaan 38, Gebouw Som 1, 1082MC, Amsterdam, Netherlands
Huxley BV 100 Netherlands Recruitment Gustav Mahlerlaan 38, Gebouw Som 1, 1082MC, Amsterdam, Netherlands
SThree Interim Services BV 100 Netherlands Recruitment Gustav Mahlerlaan 38, Gebouw Som 1, 1082MC, Amsterdam, Netherlands
SThree LLC 100 Russia Under liquidation Floor 8, Building 1, 16A, Leningradskoe Shosse, 125171, Moscow, Russia
SThree Pte. Ltd. 100 Singapore Recruitment #09-02, 18 Cross Street, China Square Central, Singapore, 48423, Singapore
SThree Business Services 100 Spain Recruitment Calle Sardenya 229, Ático, 08013 Barcelona, Ibérica, S.L. España
SThree Switzerland GmbH 100 Switzerland Recruitment 3rd Floor, Claridenstrasse 34, 8002 Zürich, Switzerland
SThree Holdings (Thailand) 49 Thailand Under liquidation Zen World Building, 12th Floor, No. 4, 4/5, Rajadamri Company Limited Road, Patumwan Sub-District, Patumwan District, Bangkok, 10330, Thailand
Progressive Global Energy 100 Thailand Under liquidation Zen World Building, 12th Floor, No. 4, 4/5, Rajadamri Manpower Limited Road, Patumwan Sub-District, Patumwan District, Bangkok, 10330, Thailand
Cavendish Directors 100 UK Dormant 8th Floor, City Place, 55 Basinghall Street, London, Limited* England, EC2V 5DX, United Kingdom
SThree UK Holdings Limited* 100 UK Holding 8th Floor, City Place, 55 Basinghall Street, London, company England, EC2V 5DX, United Kingdom
SThree Overseas Holdings 100 UK Holding 8th Floor, City Place, 55 Basinghall Street, London, Limited* company England, EC2V 5DX, United Kingdom
SThree UK Management 100 UK Holding 8th Floor, City Place, 55 Basinghall Street, London, Limited* company England, EC2V 5DX, United Kingdom
SThree Overseas 100 UK Holding 8th Floor, City Place, 55 Basinghall Street, London, Management Limited* company England, EC2V 5DX, United Kingdom
SThree UK Operations 100 UK Holding 8th Floor, City Place, 55 Basinghall Street, London, Limited* company England, EC2V 5DX, United Kingdom
SThree Consultancy 100 UK Support services 8th Floor, City Place, 55 Basinghall Street, London, Services Limited* England, EC2V 5DX, United Kingdom
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Notes to the Financial Statements For the year ended 30 November 2017
25(a). List of subsidiaries (continued)
Country of Name of undertaking % incorporation Principal activities Registered office SThree IP Limited* 100 UK Support services 8th Floor, City Place, 55 Basinghall Street, London, England, EC2V 5DX, United Kingdom
SThree Management 100 UK Management 8th Floor, City Place, 55 Basinghall Street, London, Services Limited* services England, EC2V 5DX, United Kingdom
SThree Partnership LLP 100 UK Recruitment 8th Floor, City Place, 55 Basinghall Street, London, England, EC2V 5DX, United Kingdom
Huxley Associates Global 100 UK Recruitment 8th Floor, City Place, 55 Basinghall Street, London, Limited England, EC2V 5DX, United Kingdom
Progressive Global Energy 100 UK Recruitment 8th Floor, City Place, 55 Basinghall Street, London, Limited England, EC2V 5DX, United Kingdom
Progressive Global Energy 100 UK Recruitment 8th Floor, City Place, 55 Basinghall Street, London, Kurdistan Limited England, EC2V 5DX, United Kingdom
Progressive GE Limited 100 UK Dormant 8th Floor, City Place, 55 Basinghall Street, London, England, EC2V 5DX, United Kingdom
Huxley Associates Limited 100 UK Under liquidation Hill House, 1 Little New Street, London EC4A 3TR
Huxley Associates Banking 100 UK Under liquidation Hill House, 1 Little New Street, London EC4A 3TR & Finance Limited
Orgtel Contract Limited 100 UK Under liquidation Hill House, 1 Little New Street,London EC4A 3TR
Orgtel Limited 100 UK Under liquidation Hill House, 1 Little New Street, London EC4A 3TR
SThree Staffing UK Limited 100 UK Under liquidation Hill House, 1 Little New Street, London EC4A 3TR
SThree Staffing France 100 UK Under liquidation Hill House, 1 Little New Street, London EC4A 3TR Limited
Hirestream Limited 100 UK Recruitment City Place House, 8th Floor, 55 Basinghall Street, Technology London, England, EC2V 5DX, United Kingdom
Talent Deck Limited 100 UK Recruitment City Place House, 8th Floor, 55 Basinghall Street, Technology London, England, EC2V 5DX, United Kingdom
Showcaser Limited 100 UK Recruitment City Place House, 8th Floor, 55 Basinghall Street, Technology London, England, EC2V 5DX, United Kingdom
SThree Ventures Limited 100 UK Holding City Place House, 8th Floor, 55 Basinghall Street, company London, England, EC2V 5DX, United Kingdom
Specialist Staffing 100 USA Holding Corporation trust Center, 1209 Orange Street, Holdings Inc company Wilmington, New Castle County, Delaware DE 19801, United States
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Notes to the Financial Statements For the year ended 30 November 2017
25(a). List of subsidiaries (continued)
Country of Name of undertaking % incorporation Principal activities Registered office Specialist Staffing Solutions 100 USA Recruitment Corporation trust Center, 1209 Orange Street, Inc Wilmington, New Castle County, Delaware DE 19801, United States
Specialist Staffing Services 100 USA Recruitment Corporation trust Center, 1209 Orange Street, Inc Wilmington, New Castle County, Delaware DE 19801, United States
Newington International 100 USA Recruitment Corporation trust Center, 1209 Orange Street, Inc Wilmington, New Castle County, Delaware DE 19801, United States
Progressive Global Energy 100 USA Dormant Corporation trust Center, 1209 Orange Street, Inc Wilmington, New Castle County, Delaware DE 19801, United States
* Directly held subsidiaries. All other subsidiaries are indirectly held.
25(b). List of Associates
SThree plc's investment in associate as referenced in note 12 is as follows:
Name of undertaking % Country of incorporation Principal activities Registered office HRecTech Sandpit Limited 30 UK Recruitment Ivybridge House, 1 Adam Street, London, Technology WC2N 6LE, United Kingdom
SThree plc Annual Report 2017 161 Overview Strategic Report Governance Financial Statements Shareholder Information
Five Year Financial Summary
All figures are reported figures before exceptional items in £’m unless stated otherwise 30 November 30 November 30 November 30 November 1 December 2017 2016 2015 2014 2013 £'000 £'000 £'000 £'000 £'000 Financial Performance
Revenue 1,114.5 959.9 848.8 746.9 634.3
Gross profit 287.7 258.7 235.7 218.2 199.8
Operating profit 44.9 37.8 38.4 29.8 21.2
Total assets 273.5 231.5 204.9 203.4 160.0
Total equity 80.7 75.7 59.4 51.3 51.6
Net cash/(debt) 5.6 10.0 6.2 (9.9) 8.7
Cash from operations 41.1 43.1 60.3 20.1 9.5
Financial Ratios
Conversion ratio (%) 15.6 14.6 16.3 13.7 10.6
Cash conversion (%) 78.6 95.0 134.4 47.8 80.0
Basic EPS (pence) 25.7 21.2 20.8 16.3 9.1
Dividends per share (pence) 14.0 14.0 14.0 14.0 14.0
Operational Statistics
Average total headcount* 2,668 2,675 2,607 2,487 2,228
Average sales headcount* 2,090 2,113 2,086 2,002 1,736
Active contractors at year end 10,197 9,078 8,412 7,573 5,791
* 2017, 2016 and 2015 are based on Full Time Equivalents.
SThree plc Annual Report 2017 162 Overview Strategic Report Governance Financial Statements Shareholder Information
Shareholder Information
164 Financial Calendar
164 Shareholder Information
166 Company Information & Corporate Advisors
SThree plc Annual Report 2017 163 Overview Strategic Report Governance Financial Statements Shareholder Information
Financial Calendar
2017 30 November Financial Year End
2018 29 January Annual resuts for the year ended 23 July Interim results for the six months 30 November 2017 ended 31 May 2018 16 March Q1 Trading Statement 14 September Q3 Trading Statement 26 April Annual General Meeting 14 December Trading update for the year ended 15 June Trading update for the six months 30 November 2018 ended 31 May 2018
2019 28 January Annual Results for the year ended 30 November 2018
Shareholder Information
Shareholders with enquiries relating a change of name or what to do if 0871 664 0300 (from UK – calls cost to their shareholding should contact a share certificate is lost, as well as 12p per minute plus your phone Link Asset Services (previously named download forms in respect of company’s access charge; lines are Capita Asset Services) . changes of address, dividend open 9.00am – 5.30pm Mon to Fri) or mandates and share transfers. +44 371 664 0300 (Non UK) or register Alternatively, you may access your online at: www.signalshares.com. account via www.signalshares.com, Shareholders who would prefer to There is no fee for using this service but will need to have your investor view documentation electronically and you will automatically receive code available when you first log can elect to receive automatic confirmation that a request has in, which can be found on your notification by e-mail each time the been registered. Should you wish to dividend voucher, share certificate Company distributes documents, change your mind or request a or form of proxy. The online facility instead of receiving a paper version paper version of any document in also allows shareholders to view of such documents, by registering the future, you may do so by their holding details, how to register a request via the registrar by calling contacting the registrar.
Potential targeting of shareholders
Companies have become aware offers to buy shares at a discount or • If you deal with an unauthorised that their shareholders have offers of free company reports. If you firm, you will not have access received unsolicited phone calls receive any unsolicited investment to the Financial Ombudsman or correspondence concerning advice: Services or Financial Services investment matters. These are typically • Make sure you get the correct name Compensation Scheme. from overseas-based brokers who of the person and organisation. • Any approach from such target UK shareholders offering to • Check the Financial Conduct organisations should be reported sell them what often turn out to be Authority (FCA) Register at to the FSA using the share fraud worthless or high-risk shares in US or www.fca.org.uk/register to ensure reporting form at www.fca.org.uk/ UK investments. They can be very they are authorised. scams. You can also call the persistent and extremely persuasive Consumer Helpline on • Use the details on the FCA Register and a 2006 survey by the Financial 0800 111 6768. Details of share to contact the firm. Services Authority (FSA) reported that dealing facilities that the Company the average amount lost by investors • Call the FCA Consumer Helpline endorses will only be included in was around £20,000. It is not just the on 0800 111 6768 if there are no publications issued by the Company. novice investor that has been duped contact details on the Register or in this way; many of the victims had you are told they are out of date. More detailed information on this been successfully investing for • The FCA also maintains on its or similar activity can be found several years. website a list of unauthorised on the FCA website at www.fca.org.uk/consumer Shareholders are advised to be overseas firms who are targeting, very wary of any unsolicited advice, or have targeted, UK investors.
SThree plc Annual Report 2017 164 Overview Strategic Report Governance Financial Statements Shareholder Information
Shareholder Information
ADR Information
For US investors, the Company has Overnight Mail: For the issuance of ADRs please set up a Level One ADR facility, under BNY Mellon Shareowner Services contact: the ticker symbol ‘SERTY’. BNY Mellon 462 South 4th Street London: Damon Rowan acts as both ADR depositary bank Suite 1600, Louisville KY 40202 T: +44 207 163 7511 and registrar for this facility. For further E: damon.rowan@ bnymellon.com Customer service information, please visit the website: T: 1 888 269-2377 New York: Margaret Keyes www.adrbnymellon.com and search T: +1212 815 6915 for the SThree profile page. Holders (from outside the US Tel: E: margaret.keyes@ bnymellon.com can also access information by T: 001 201 680-6825) W: www.adrbnymellon.com writing or calling: E: shrrelations@ cpushareownerservices.com Mailing Address: BNY Mellon Shareowner Services PO Box 505000 Louisville, KY 40233-5000
Share Price Information
Information on the Company’s share price can be found via: www.sthree.com.
Share Dealing Service
For further information on this service, 4:30pm, Monday to Friday excluding apply. Link Asset Services is a trading or to buy and sell shares visit public holidays in England and Wales. name of Link Market Services Trustees www.linksharedeal.com or call Limited which is authorised and This is not a recommendation to buy 0371 664 0454. Calls are charged at regulated by the Financial Conduct and sell shares and this service may the standard geographic rate and Authority. This service is only available not be suitable for all shareholders. will vary by provider. Calls outside to private shareholders resident in the The price of shares can go down as the United Kingdom will be charged European Economic Area, the well as up and you are not guaranteed at the applicable international rate. Channel Islands or the Isle of Man. to get back the amount you originally Lines are open between 9:00am - invested. Terms, conditions and risks
Dividend Re-Investment Plan (Non-Sponsored)
For any shareholders who wish to Any shareholder requiring further Lines are open between 9.00am – re-invest dividend payments in information should contact Link on 5.30pm, Monday to Friday excluding additional shares of the Company, 0371 664 0381 - calls are charged at public holidays in England and Wales. a facility is provided by Link Market the standard geographic rate and E: [email protected] Services Trustees Limited in conjunction will vary by provider. Calls outside the with Link Asset Services. Under this United Kingdom will be charged at facility, accrued dividends are used the applicable international rate. to purchase additional shares.
ShareGift
ShareGift (reg charity no. 1052686) parcels of shares whose value may Details of the scheme are available operates a charity share donation make it uneconomic to sell. from: scheme for shareholders with small W: www.sharegift.org T: 0207 930 3737
SThree plc Annual Report 2017 165 Overview Strategic Report Governance Financial Statements Shareholder Information
Company Information & Corporate Advisors
Executive Director Registrars (Ordinary Shares)
Gary Elden Link Asset Services Chief Executive Officer The Registry, 34 Beckenham Road, Alex Smith Beckenham, Chief Financial Officer Kent Justin Hughes BR3 4TU Chief Operating Officer, T: (UK) 0871 664 0300 COO & CEO, APAC & ME T: (Non UK) +44 371 6640 300 E: [email protected] W: www.signalshares.com Compliance Hotline * Calls cost 12p per minute plus your phone T: 0808 234 7501 company’s access charge and calls outside the UK will be charged at applicable W: www.integrity-helpline.com/ international rates. Lines are open 9:00 am - sthree.jsp 5:30 pm Mon - Fri, excluding public holidays in England and Wales.
Financial Advisors & Stockbrokers Group Company Secretary UBS Investment Bank & Registered Office 1 Finsbury Avenue, London Steve Hornbuckle EC2M 2PP Group Company Secretary 8th Floor, City Place, Liberum Capital 55 Basinghall Street, Ropemaker Place, London Level 12 , EC2V 5DX 25 Ropemaker Street, E: London [email protected] EC2Y 9LY
Company Number
Financial PR 03805979 Citigate Dewe Rogerson 3 London Wall Buildings, London Wall, Contact Details London T: 0207 268 6000 EC2M 5SY F: 0207 268 6001 E: [email protected] W: www.sthree.com Auditors (FY 2017)
PricewaterhouseCoopers LLP 1 Embankment Place, London WC2N 6RH
SThree plc Annual Report 2017 166 Overview Strategic Report Governance Financial Statements Shareholder Information
SThree plc Annual Report 2017 167 Overview Strategic Report Governance Financial Statements Shareholder Information
www.sthree.com
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