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Annual Report 2017 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. SThree plc Annual Report 2017 4 Overview Strategic Report Governance Financial Statements Shareholder Information 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 SThree plc Annual Report 2017 5 Overview Strategic Report Governance Financial Statements Shareholder Information 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. SThree plc Annual Report 2017 6 Overview Strategic Report Governance Financial Statements Shareholder Information 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,
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