ANNUAL REPORT 2 016
STEM STAFFING SPECIALISTS OVERVIEW
STHREE AT A GLANCE
Who We Are SThree plc is a leading international staffing company.
What We Do We provide specialist The Group operates a family of ten on creating a diverse and inclusive recruitment services in the brands, each with expertise and work environment allows us to find focus on niche areas. This gives us and retain skilled people and to STEM (Science, Technology, a deep understanding of industry bring a wealth of experience to Engineering and sectors and ensures we deliver a solving workplace challenges Mathematics) industries. quality service to our clients and for our customers. candidates. Our strong emphasis
Key Company Facts Key Financial Facts
Countries Offices Financial Year 15 39 1 December 2015 - 30 November 2016
Sales Headcount Revenue Gross Profit 2,044 (-6%) * * £959.9m (+6% ) £258.7m (+2% ) 2015: 2,185
Total Headcount Statutory Operating Profit Adjusted Operating Profit 2,590 (-6%) £37.8m (-2%) £41.3m** (Flat**) 2015: 2,752
Contractor Runners Statutory Basic Earnings per Adjusted Basic Earnings per Share Share 9,078 (+8%) ** ** 2015: 8,412 21.2p (+2%) 23.2p (Flat )
* In constant currency ** Excludes the impact of £3.5m restructuring costs, see page 24. 2 STHREE AT A GLANCE OVERVIEW
OUR VISION IS TO HAVE THE LEADING SPECIALIST STEM RECRUITMENT BRANDS IN THE MARKETS IN WHICH WE PARTICIPATE
Table of Contents
Overview 22 5 Year Review 80 Audit Committee Report 2 SThree at a Glance 23 Chief Financial 86 Nomination Committee 3 Our Vision Officer’s Review Report 3 Table of Contents 27 Key Performance Indicators 87 Independent Auditors’ Report 4 Our Brands, Sectors 29 Risk Management Strategy
& Locations 35 Corporate Social Financial Statements 94 Financial Statements Responsibility Report Strategic Report 132 5 Year Financial Summary 6 Our Business Model Governance 8 Our Investment Case 41 Chairman’s Governance Shareholder Information 10 Our Business Strategy Overview 133 Financial Calendar 12 Chief Executive 43 Board of Directors & Secretary 134 Shareholder Information Officer’s Review 46 Directors’ Report 136 Company Information 18 Continental Europe 52 Directors’ Remuneration & Corporate Advisors 19 UK & Ireland Report 20 USA 71 Corporate Governance 21 Asia Pacific & Middle East Report
OUR VISION 3 OVERVIEW
OUR BRANDS, SECTORS & LOCATIONS
SThree consists of a family Our customers, both candidates Within the STEM industries we of ten niche recruitment and clients, engage with SThree provide permanent and contract primarily through our four largest staff to sectors including ICT, brands, focusing on the recruitment brands: Computer Banking & Finance, Life Sciences, STEM industries (Science, Futures, Progressive Recruitment, Engineering and Energy. Technology, Engineering, Huxley and Real Staffing. and Mathematics).
Our Sectors • ICT • Public Sector • Digital Marketing, Creative & Advertising • Banking • Procurement & Supply Chain • Previously hidden and • Financial Services • Change Management under-utilised talent to help • Engineering • Logistics close the diversity gap. • Life Sciences • Construction
• Energy • Executive Search
4 OUR BRANDS, SECTORS & LOCATIONS OVERVIEW
Our Locations BELGIUM LUXEMBOURG • Antwerp • Luxembourg • Brussels City
FRANCE NETHERLANDS • Paris • Amsterdam • Rotterdam GERMANY • Berlin SWITZERLAND CONTINENTAL EUROPE • Düsseldorf • Zurich • Frankfurt • Munich • Hamburg • Stuttgart
UK • Bristol • Birmingham • Glasgow • London • Leeds • Manchester
UK & IRELAND IRELAND • Dublin
USA • Austin • Boston • Chicago • Houston • Minneapolis • New York • San Diego USA • San Francisco
UAE SINGAPORE • Dubai • Singapore
HONG KONG AUSTRALIA • Hong Kong • Sydney
MALAYSIA JAPAN ASIA PACIFIC & MIDDLE EAST • Kuala Lumpur • Tokyo
OUR BRANDS, SECTORS & LOCATIONS 5 STRATEGIC REPORT
OUR BUSINESS MODEL
The specialist recruitment market is primarily driven by confidence amongst candidates to move jobs, and businesses to replace them or create new roles as they grow and invest.
Our business model is to create We earn fees from our clients when
a virtuous circle between our we place a candidate with them.
C
U
customers, services and people. S
E T
These fees are charged as a L O
Our highly trained consultants
P M
percentage of the candidate’s O
E provide skilled people into niche
E
R
salary. With permanent roles the P
roles. This allows our clients and
fees are charged when the
candidates to work together
candidate begins work with the
to build the future.
client. With contractors we invoice
Across our brands, our regions and clients on an ongoing basis for the
sectors, Contract and Permanent, duration of the contract, with the SERVICE we operate through our key Group paying contractors and principles: retaining a portion of the amount • Build trust charged as a service fee. • Care and act • Be clear, aim high. We bring skilled people together to build the future
6 OUR BUSINESS MODEL STRATEGIC REPORT
Our Customers We have three different sets of detailed market sector knowledge We match our impressive scale Customers: the client organisations and the ability to reach a vast with a strong emphasis on that we work with, contractors we network of candidates through our customer experience, to ensure place with them on a temporary own bespoke tools and by using that Clients, Contractors and basis and permanent candidates market-leading sourcing techniques. Permanent candidates receive looking for a long term career the high level of service that will For those in search of a new move. We work with almost every motivate them to deal with us in opportunity we deal with both size and shape of company in the future and to recommend us candidates and contractors, to need of skilled technical to other future customers. This find them both Permanent and specialists,from small enterprises emphasis on customer experience Contract roles. We match them through to some of the largest and has a growing importance in our to one of the tens of thousands of most respected global companies. performance management companies we work with on an practices and incentives. We are able to provide them with ad hoc or ongoing basis. the talent they need through
Our Services Our Services primarily involve in addition to covering a defined One of the reasons our clients work placing people in either Contract market sector and geography. This with us is because we understand or Permanent roles and supporting allows us to offer a high level of the regulations that apply to the client companies and candidates service to customers across a wide jurisdictions where our candidates before, during and after that range of profiles and industries. work. We can ensure full process. compliance for all parties and this To ensure our strategy cascades valuable market knowledge is a Our mix of Contract and through the organisation we have source of sustainable competitive Permanent business means that targets and incentives at all levels advantage for SThree, particularly we are well placed to support our of the company to ensure that we given the long-term trend in favour clients and candidates. Our team are actively managing the size and of contract working. of consultants specialise in either performance of our Contract and Contract or Permanent recruitment, Permanent teams.
Our People Our People are our greatest environment which allows them More fundamentally, our strong asset. We know that a customer’s to progress, irrespective of their sense of purpose is that we bring interaction with an individual background. We put learning and skilled people together to build the recruiter drives over 60% of their development programmes in future. This makes SThree a very total satisfaction with any place that are designed to support appealing place to build a career. transaction. their career at all stages. To support Our own efforts in this area also this, our senior team have specific allow us to provide strategic That’s why we provide them with objectives to ensure we are counsel to our clients about how the support and systems they need building and retaining a diverse they can win the war for talent to grow their career. We are and motivated workforce. in their sectors. committed to creating an inclusive
OUR BUSINESS MODEL 7 STRATEGIC REPORT
INVESTMENT CASE
Our business model We are a STEM recruiter with We have a consistent and robust is well diversified across multiple brands to maximise dividend track record supported opportunities, including allowing by a strong balance sheet. geographies and sectors. our brands to overlap and Our entrepreneurial culture is It covers the different and compete where this creates supported by a range of long- greater shareholder value. complementary revenue term incentives to drive sustained streams of both Contract We participate in markets where performance. demand for talent exceeds and Permanent Additionally our experience over supply, giving us structural recruitment. the last 30 years gives us insight long-term growth opportunities. and flexibility to rapidly Our balanced business model re-deploy our staff across sectors provides us with a good degree of and regions in response to resilience across a range of sectors, changing market dynamics. geographies and employment Our leading edge award-winning mixes. systems and global infrastructure Our weighting towards Contract provide a scalable platform for employment makes us a safer future growth. investment.
Why STEM? We specialise in the STEM • Ideal for the recruitment sector • Relatively high churn as market, because of the as highly skilled candidates are candidates move to update difficult to identify; skills and projects require following characteristics: • A fast growing job market; different skill mixes; • Higher average salaries; • The Contract offering is particularly well suited to • High demand for candidates; the STEM market.
Demand for quality talent • Demographic shifts and • Expanding client portfolios; in STEM markets remains an ageing workforce; • Shortage of talent considering strong, due to: • Shortage of specialist skills careers in STEM. in technical areas;
8 INVESTMENT CASE STRATEGIC REPORT
Focus on Contract Recruitment With our Contract runner • Long-term societal preference cash requirements and growing level at a record high we for contract assignments, compliance and regulatory particularly among skilled requirements; continue to believe that individuals; • More predictable and visible this presents us with • Higher lifetime value than earnings stream; sustained growth a Permanent equivalent; • More resilient than Permanent in opportunities in 2017 • STEM markets are often times of economic uncertainty for the following reasons: project-based; as companies defer long-term • Tendency for contract rates to investments; rise in positive economic climate • Ongoing client relationships when talent is in short supply; more likely to generate other • Greater barriers to entry for other opportunities. recruitment companies due to Contract runners up 77% since 5,745 4,157 4,359 4,692 5,122 5,791 7,573 8,412 9,078
2012 2008 2009 2010 2011 2012 2013 2014 2015 2016 Contract Runner Chart
Diverse Sectors and Regions GP Business Mix - Sector ICT Banking & Finance Energy Engineering Life Sciences Other
17% 21% 19%
9% 45% 9% 41% 39% 9% 2016 2015 2014
8% 11% 15%
16% 18% 18%
GP Business Mix - Geography C Europe UK&I USA APAC & ME
19% 15% 20%
7% 6% 9% 46% 2016 49% 2015 44% 2014
25% 30% 30%
INVESTMENT CASE 9 STRATEGIC REPORT
OUR BUSINESS STRATEGY
A 5-Point Plan for Growth Our five-point plan is 1. Leverage growth designed to achieve our opportunities across vision to have the leading our sectors specialist STEM recruitment Grow and diversify our business to provide robust, sustainable returns for brands in the markets in 2. Grow and diversify our shareholders, expand our services to across our regions which we participate. our candidates and clients, and provide exciting opportunities for our people. Our five-point plan for growth is: 3. Identify Merger & to leverage growth opportunities Acquisitions opportunities across our sectors; to grow and to expedite growth diversify across our regions; to identify Merger & Acquisition Grow Contract to build a resilient opportunities to expedite growth; business in a world of increasing macro- to focus on Contract; to leverage economic and political uncertainty and and build an infrastructure rapidly evolving technology to secure for growth. 4. Focus on Contract returns to our shareholders. Contract is an area where we can continue to We do this by delivering excellent provide a differentiated service through service to our existing clients, the market knowledge of our people engaging with new clients in and our compliant services. our specialist areas and further developing our infrastructure. It is To have the leading specialist STEM by expertly managing this blend recruitment brands we provide our people with the best systems, allowing that we will deliver sustainable 5. Build on infrastructure them to deliver the best possible returns for shareholders. for growth service to our clients and candidates, and to assess which markets to focus their resources.
10 OUR BUSINESS STRATEGY STRATEGIC REPORT
Additionally each year we set out our one-year priorities which will allow us to build towards our vision.
Strategic Priorities 2016 Customers Services People
Strategic • Positive quarterly YoY • Now represents 63% of sales Investment in growth for over 5 years headcount, our highest ever Contract • Contract now 67% of GP (FY 2015: 64%)
Drive Recovery • Successful focus on • Restructure of the in Permanent improving productivity, Permanent business to focus Productivity up 3%* YoY on higher yielding markets
Broaden • GP flat* YoY and ahead by • Significant ICT opportunity, capabilities 9%* excluding Energy GP up 46%* YoY in high growth • Established Madison Black, • Positive development of US markets a new brand, to service productivity in H2 digital marketing • Ongoing M&A activity to explore potential acquisitions
Accelerate • Strong performance from • ICT represents only 10% of sector ICT, Life Sciences and our GP outside of Europe diversification Engineering offsetting and increasing market in key STEM weakness in Energy and share in these areas is a key growth Banking & Finance growth opportunity markets • We are one of the largest professional recruiters in the global banking market
Build scale and • Growth driven by • New offices opened in critical mass in increased returns from Austin and Minneapolis global network existing locations
Focus on costs • Restructure of Energy, • Tighter ongoing control and efficiencies Banking & Finance and UK of costs to improve businesses and a further operational right sizing of central gearing support functions in 2016
* in constant currency
OUR BUSINESS STRATEGY 11 STRATEGIC REPORT CHIEF EXECUTIVE OFFICER’S REVIEW
“I am pleased with the Group’s performance through a challenging financial year. We have begun a transformation to make the customer the focus of our activities at every level. This is already starting to change the way we think and act and will give us sustained competitive advantage. Our approach to diversify by region and sector, with a key focus on growing our Contract business has developed us into a resilient Group, capable of weathering the political and economic uncertainties that we have faced through 2016 and will continue to face in 2017.”
A number of external factors have slowed growth in key sectors and regions, but there have been notable successes that have allowed us to continue to grow our Gross Profit and exit the year with our highest ever number of Contract runners.
12 CHIEF EXECUTIVE OFFICER’S REVIEW STRATEGIC REPORT
Our clear strategy to Group GP grew by 2%* Performances in our other regions create a virtuous circle in the year with Contract reflect more challenging conditions, with GP in the USA being flat*, Asia between our Customers, ahead by 8%* and Pacific & Middle East (‘APAC & ME’) Services and People Permanent down by 8%*. down by 15%* and the UK&I down keeps us strong. When we Our strongest performances by 8%*. The majority of these year can understand and act included Continental on year changes were attributable to external factors, with difficult on their different needs Europe (up 13%*), where trading conditions in key sectors in we build a business that very strong client and these regions, especially in Banking is both agile in the short- candidate delivery by & Finance and Energy. term and robust over the our teams ensured we In the USA, a key growth engine longer-term. In 2016 we capitalised on a buoyant for the Group in recent years, we demonstrated our ability market. ICT and faced operational challenges to execute against this Engineering also fared which were quickly addressed, but strategy in a way that well with GP ahead by nevertheless, we saw slower growth than previously, only part of which delivered good outcomes 12%* and 9%*, respectively. was down to market conditions. for our customers and our people, and solid financial We have responded to these difficult trading conditions with results for our shareholders a greater focus on the growth in a challenging market. of Contract and more selective
headcount planning at a regional
and sector level (including a
GARY ELDEN OBE restructuring of parts of the STHREE CEO business).
FY 2016 FY 2015 “We have begun a Breakdown of GP % % transformation to Contract/ Permanent Split Contract 67% 64% make the customer Permanent 33% 36% the focus of our 100% 100% activities. This is Geographical Split already starting to UK&I 25% 30% change the way Continental Europe 49% 44% USA 20% 19% we think and act.” APAC & ME 6% 7% 100% 100%
Sector Split ICT 45% 41% Banking & Finance 16% 18% Energy 8% 11% Engineering 9% 9% Life Sciences 21% 19% Other 1% 2% 100% 100%
* in constant currency
CHIEF EXECUTIVE OFFICER’S REVIEW 13 STRATEGIC REPORT
Contract and Perm Mix Our business mix continued to shift we have placed around 17,000 Group FY 2016 in favour of Contract, a business skilled specialists during the year. GP GROWTH YoY* where we continue to see CONT PERM TOTAL As we have been able to report attractive growth opportunities every year since placing greater +8% -8% +2% and one which is also more resilient strategic focus on Contract in 2012, in times of uncertainty. In 2012 we entered our new financial year GP MIX our GP was evenly split between with a record Contract book. Period Contract and Permanent end Contract runners were at CONT recruitment. At that time we set 67% 9,078, up 8%. PERM out our plans to grow our Contract 33% business faster than our Permanent A roll out of our Employed business, with a mid-term goal of Contractor Model (‘ECM’), AVG. SALES HEADCOUNT YoY reaching roughly a two-thirds split which was first introduced in 2013, in favour of Contract. We have now continued through the year, with CONT PERM TOTAL achieved a 67% split in favour of new offerings in Germany and +11% -10% +1% Contract, a growth of 3% YoY. Japan. At the year end, 15% of Contract runners were employed To achieve this we have continued retaining a well diversified business. under this model. The ECM is to invest in our teams that In 2016 Permanent GP was down structured such that the Group specialise in Contract, as we set 8%* YoY. At the start of the year we employs individuals directly and out to do at the end of 2015. set out a goal to focus primarily on contracts them to clients, in Contract sales headcount at improving yields. During 2016 we contrast to the traditional Personal period end had grown by 1% YoY saw average Permanent yields Service Company model. With and will continue to represent the grow by 3%* while period end governments examining new ways bulk of headcount growth during sales headcount was down 17%. to raise tax revenues to address 2017. Permanent sales headcount budget deficits, including the IR35 We believe that this balance by comparison was down by 17%. Intermediaries Legislation in the towards Contract continues to At the end of the financial year, UK and the Deregulering represent the best long-term Contract sales headcount Beoordeling Arbeidsrelaties approach for the company represented 63% of total sales (DBA law) in the Netherlands, our and, during 2017, we expect that headcount (2015: 58%). business model is expected to shift Contract will continue to grow as Although this is pleasing from a further towards the ECM over time. a percentage of total Group GP, business perspective, of greater while we also maintain our sharp The Permanent side of our business significance for me and my focus on improving yields and now represents 33% of Group GP, colleagues is the knowledge that selectively growing headcount in line with our stated strategy of in Permanent.
Regional and Sector Mix
Looking at the performance of our To be successful in this sector ICT CONT PERM TOTAL regional teams and industry sectors requires agility and significant skills GP GROWTH* +15% +4% +12% across the globe, we are satisfied with in execution, in order to: identify
the robustness of our business model. new trends; understand what AVG. SALES +14% +1% +9% business model is required in sectors HC ICT which are starting to become GP MIX ICT continues to be our biggest commoditised; and be able to sector and provides us with a act decisively to exit shrinking or breadth of opportunities across all over-commoditised niches. These CONT 73% of our regions. ICT accounted for same underlying organisational PERM 27% 45% of our GP in 2016. skills help us manage some of our
* in constant currency
14 CHIEF EXECUTIVE OFFICER’S REVIEW STRATEGIC REPORT
smaller and more cyclical business diversified further into renewables all areas where our highly-skilled units such as Energy – which has and power generation. The oil people can find the best been affected by the low oil price price has remained much lower candidates to support businesses for several years – and Banking than the highs seen in the mid 2014 across this broad industry. & Finance, a sector which and there are no signs of a recovery experienced a general to these levels. This continued low Engineering Our Engineering sector slowdown during 2016. oil price has hampered our performed well in the year, despite reported growth, especially in the restructuring its Permanent business Banking & Finance USA and APAC & ME. Energy now in certain regions. The sector We are one of the largest represents only 8% of the Group GP, operates predominantly from professional recruiters in the global contracting to small, highly-skilled Continental Europe. banking market. The Global teams who have returned to Banking market uncertainty is profitability through the year. The ENGINEERING CONT PERM TOTAL adversely impacting our Banking Energy division picked up significant GP GROWTH* +10% +7% +9% & Finance sector with a number of new business in midstream and large clients implementing hiring downstream this year, including AVG. SALES +2% -13% -5% freezes through the year as in renewables, to offset ongoing HC restructuring continues across the weakness in the upstream sector. industry. This has impacted our GP MIX businesses across the UK&I, USA GLOBAL ENERGY CONT PERM TOTAL CONT and APAC & ME in Contract, but GP GROWTH* -12% -80% -30% 65% more so in Permanent. PERM AVG. SALES 35% -11% -86% -39% Given current global economic HC conditions, this market is not Regional GP MIX expected to improve in the short- At a regional level, the Group term and we are diversifying our continues to become ever more teams into other related markets. PERM international, with 75% of Group GP 8% Our Banking & Finance teams CONT now derived from markets outside its 92% continue to expand their client historic base in the UK. Continental mix beyond banking into adjacent Europe has grown significantly sectors in the broader financial while other regions have been Life Sciences challenged primarily due to regional services market. Banking has We pride ourselves on being one of or sector issues. Restructuring remained resilient in Continental the largest professional recruiters in measures were taken in a number Europe. Although German banks the Life Sciences market. Although of businesses more heavily are under intense pressure, the rate of growth has slowed in impacted by market conditions, opportunities exist as they modernise. the year with cost-cutting across
BANKING & the sector, many new opportunities CONT PERM TOTAL Growth/(Decline) by Region* FINANCE remain. New healthcare businesses FY 2016 GP GROWTH* -4% -14% -9% with disruptive business models are fuelling change in the sector with a 13% AVG. SALES +13% -8% +1% growth in the use of data analytics HC and the emergence of a new Flat GP MIX ‘digital health’ segment. These are
LIFE SCIENCES CONT PERM TOTAL (8%) CONT * 52% PERM GP GROWTH +12% +4% +8% (15%) 48% FY 2015 26% AVG. SALES +26% +2% +14% HC Global Energy 14% GP MIX The Energy division picked up 5% significant new business in CONT midstream and downstream this 60% PERM year to offset ongoing weakness in 40% C EUROPE UK&I (6%) the upstream sector. It also USA APAC & ME
* in constant currency
CHIEF EXECUTIVE OFFICER’S REVIEW 15 STRATEGIC REPORT
especially Energy and Banking at Austin and Minneapolis, as well manage costs and contractual a sector level and the UK, USA and as launching Madison Black, a commitments carefully. In the APAC & ME at a regional level. specialist digital marketing second half of 2016 we moved Uncertainty created by the EU brand, in New York. our London consultants to two new Referendum in the UK had an locations and rehoused support We have also laid the foundations adverse impact with GP falling staff, in order to reduce our for further growth within our existing across all sectors, but with the property costs whilst also regions by adding office capacity greatest impact in our Banking improving the work environment. in some key locations and sector and our Permanent business. preparing for additional moves Further detail about our regions During 2016 we expanded our US and new office openings in 2017. is provided on pages 18 - 21. footprint by opening offices in At the same time we continue to
Significant Projects Away from the ‘front line’ of up. We expect this process to allow us to deliver a better and recruitment we have taken steps continue in 2017 as an important more efficient service to our to ensure that we have the right way to be alert to the potential customers while also providing mix of products, services and disruptive technologies. market-leading tools to our business models to address both workforce, helping them to fulfil In addition to these activities in current and future needs, with a their roles more effectively and innovation we have made two much greater internal emphasis on improving retention. In particular large transitions during 2016 which innovation and entrepreneurship. we have rolled out three major we expect to generate significant We have created an internal new technology initiatives, benefits for the Group for the system of innovation which gives replacing our core sales system remainder of this decade us greater ability to identify with Salesforce, replacing our core and beyond. promising new ideas and to test HR system with Fairsail and our them quickly. At the end of the First, we have rolled out a major incentives system with Xactly. year, there were a handful of new customer experience programme Our underlying ‘platform’ (the initiatives of different size and scale globally, using Net Promoter Score linked set of systems and processes either already at early test stage (NPS) to capture insight from both that power all our brands globally) with some clients, or being client companies and individual has always been a source of incubated internally for candidates. Importantly, we sustained competitive advantage deployment during 2017. understand that this is not just a and we believe that the data capture exercise but the first We also provided a structured investments we have made and step in using greater customer opportunity for our staff to become deployed in 2016 leave us very insight to adapt our systems, involved in this process, running well placed for the future. processes and behaviours to innovation challenges across a deliver outstanding service. We Given the many uncertainties in number of our offices to generate have already seen significant the global economy during the a stream of ideas to feed into our improvements in our overall NPS year, our ability to stay focussed innovation system. We have found this results as well as in the volume of and to deliver solid results is to be both a strong source of ideas data we capture, as our sales and testament to the hard work as well as a good way to engage support teams take this information of our skilled global teams, and motivate our sales teams. and use it to improve working executing against a clear In addition to unlocking internal practices. We are excited both by and successful strategy. innovation we have also engaged what we have achieved in the last
with a number of start-ups in the 12 months and by the considerable Chief Operating Officer recruitment space, to identify ongoing improvements we can still Recognising the need to provide whether we should make strategic make in order to increase senior backing to our project investments or find other ways to satisfaction and loyalty. streams, we have broadened unlock the potential in these ideas. Second, we have continued to Justin Hughes’ role, appointing him We have for example, made a invest heavily in our systems and as Chief Operating Officer from small investment in an HR Tech start technology during the year. This will 1 December 2016.
16 CHIEF EXECUTIVE OFFICER’S REVIEW STRATEGIC REPORT
Outlook This has been a year of unexpected At a sector level, we expect to be alert to opportunities to add developments in several of our key continuing challenges in the Energy new capabilities to the Group by territories which are likely to impact sector and also in the Banking acquisition. the future trading environment. market. In these two areas in We have shown in previous periods The changed political landscape particular, but also across the entire of uncertainty that we can optimise creates global macro-economic business, our management focus in our performance. All of these uncertainties which make this a 2017 will be spent ensuring that we experiences have made us stronger difficult environment in which to retain our valuable agility and that and more resilient as a business. It is plan. Upcoming elections in France we make the right investment this knowledge, together with the and Germany are likely to prolong decisions across our portfolio. investments we continue to make the political and economic We will continue to focus on the in both people and technology, uncertainty already created by Contract market, where we see that give us the leadership skills, the the EU Referendum result in the UK attractive growth opportunities and organisational intelligence and the and by new political leaders in the which is more resilient in periods underlying agility to thrive. UK and USA. With that in mind, we of economic uncertainty. As we will continue to adopt the prudent have done in 2016, we will pay approach to planning which has close attention to productivity and served us well in recent years, but underlying costs in both Permanent remain poised to respond quickly and Contract. We will also continue to opportunities when they arise.
“We have shown in previous periods of uncertainty that we can optimise our performance. It is this knowledge, together with the investments we continue to make in both people and technology, that give us the leadership skills, the organisational nous and the underlying agility to thrive.”
CHIEF EXECUTIVE OFFICER’S REVIEW 17 STRATEGIC REPORT CONTINENTAL EUROPE
* Continental Europe represents half of our Group GP. It Engineering GP +24% YoY delivered an excellent performance in 2016 (GP +13%), * with strong delivery in a good market. Permanent GP per head +6% YoY
Contract Runners +20% YoY Performance in 2016 growth areas in both regions Management for Continental were ICT and Engineering, both Europe is split into two regions: achieving double digit growth. GP - Growth YoY* Germany, Austria and Switzerland Strong staff engagement and a 2016 127.5m +13% (DACH) which is 27% of Group GP focus on improved service levels and Belgium, Netherlands, were key to the success of both 2015 103.2m +14% Luxembourg & France (BENELUX & regions in 2016. We have also run 2014 99.4m +12% France), which is 22% of Group GP. internal innovation challenges to 2013 96.6m -7% unlock new ideas. Overall, strong growth was achieved in the Contract business, with Expectations for 2017 France and Germany the stand We ended 2016 with a record Sales Headcount - YoY out countries on growth. Our Contract pipeline, our best ever German Contract GP grew +22%* level of staff retention, a clear 2016 1,045 +14% YoY, and France Contract GP strategy, and a focussed and 2015 1,002 +11% grew +16%* YoY. motivated team driving a strong exit rate for the year. In 2017 we 2014 899 C EUROPE expect to leverage our newly 49% OF GROUP established Employee Contractor Model to gain market share and FY 2016 Cont-Perm Mix In Germany, we have the largest to expand our office portfolio. Permanent business and our Contract business is growing We aim to continue to grow CONT rapidly. BENELUX & France also our headcount selectively 66% PERM had a strong year with GP +9%*, and capitalise on the market 34% with Contract +12%* and Perm opportunity, whilst mindful of the +1%*. We have the largest legislative, macro-economic, and professional staffing company in political risks that may impact the the Netherlands. We opened a region, especially with elections FY 2016 Sector Mix new office in Brussels in 2016 and in France, the Netherlands and ICT ENGINEERING 51% 13% plan to take on more space in Germany scheduled for 2017. LIFE SCIENCES Amsterdam in 2017. Our strongest 16% OTHER 3% BANKING & FINANCE ENERGY 10% 7% DAVE REES CEO, Continental Europe
C Europe FY 2016
CONT PERM TOTAL GP +17% +7% +13% GROWTH*
AVG. SALES +12% +1% +7% HC
* in constant currency
ICT Engineering Life Sciences Other Energy Banking & Finance 18 CHIEF EXECUTIVE OFFICER’S REVIEW - REGIONAL STRATEGIC REPORT UK & IRELAND
We successfully re-tendered for a number of Public Perm GP per head * - FY Flat YoY Sector Framework Agreements demonstrating our credentials for providing a high quality, compliant service. Perm GP per head - Q4 +8%* YoY
Performance in 2016 small reduction in our Contract Perm Average Fee +2% YoY Our UK&I business experienced a pipeline and a smaller, more challenging year in 2016 with all focused Permanent business. sectors down YoY. The economic The region has spearheaded the GP - Growth YoY* and political uncertainty created global rollout of our customer by the EU Referendum adversely experience activity, using insight to 2016 64.0m -8% impacted the business, especially change behaviour and improve 2015 69.5m +5% our Permanent division. It also satisfaction scores. 2014 66.3m +9% compounded issues in the Banking sector (down 19%*) which was Expectations for 2017 2013 63.2m -12% In 2017 we face considerable already facing a significant slow uncertainty as the UK formalises its down. We successfully re- exit from the EU and we will direct tendered for a number of Public our resources to maximise the Sales Headcount - YoY Sector Framework Agreements, opportunities and protect against demonstrating our ability to provide 2016 530 -16% the risks as they become clear. The a high quality, compliant service. IR35 Intermediaries Legislation, 2015 634 +5% However, as expected, these new applicable from April 2017, is framework agreements are being 2014 604 expected to reform off-payroll concluded at significantly lower working in the Public Sector. This rates, resulting in a sharp drop in is expected to adversely impact Public Sector fees. our UK Public Sector business, but FY 2016 Cont-Perm Mix UK&I OF could also present an opportunity GROUP for us given our ability to deliver PERM 25% 23% fully compliant services to our CONT In response to these challenges, Public Sector candidates 77% we have restructured the UK and clients. business, including streamlining and re-sizing teams; re-defining our We expect to hold our UK&I Permanent and Contract value headcount broadly level, re-mixing FY 2016 Sector Mix propositions and trialling a it as required through the year, to ICT ENGINEERING capitalise on the market 60% 10% candidate resourcer centre LIFE SCIENCES model. We ended 2016 with a opportunity. 10% OTHER BANKING 2% & FINANCE ENERGY 15% 3% MIKE WALKER Regional Managing Director, UK&I UK&I FY 2016
CONT PERM TOTAL GP -3% -21% -8% GROWTH*
AVG. SALES +2% -21% -7% HC * in constant currency ICT Engineering Life Sciences Other Energy Banking & Finance CHIEF EXECUTIVE OFFICER’S REVIEW - REGIONAL 19 STRATEGIC REPORT USA
* Contract GP up 10%* as our business moves towards ICT GP +46% YoY Contract in response to the needs of our clients. Permanent GP * Performance in 2016 Houston based Energy business per head +4% YoY The USA has been SThree’s fastest (down 38%* YoY) and a global growing region in recent years downturn in Banking has Contract GPDR fuelled by growth across all of our impacted our East Coast business (excl Energy) +3% YoY STEM sectors. However, 2016 has with Banking down 7%* YoY. We seen overall growth slow as the launched a new brand during GP - Growth YoY* business was impacted by difficult the year, Madison Black, focused markets in both Banking and Energy. on serving clients in the Digital 2016 50.7m -- Overall GP was flat YoY but up 9%* Marketing and Creative 2015 45.5m +26% excluding Energy. We continued staffing sector. to see positive growth in Contract 2014 33.4m +73% Period end sales headcount was with GP up 10%*, driven by growth down 17%, with Contract down 2013 20.9m +32% in average sales headcount up 9% and Permanent down 30%, 27%, and with period-end Contract as we restructured the business in runners up 5%. Permanent GP was response to market conditions in down 15%* YoY, with average sales Sales Headcount - YoY Energy and Banking & Finance. headcount down 18% and a 4% 2016 307 -17% improvement in productivity. Fees USA OF 2015 370 +38% remained robust, reflecting the 20% GROUP niche position and value of our 2014 277 proposition to our clients in Expectations for 2017 the region. With growth in Contract runners and a restructured business As previously reported, Life Sciences, delivering improved yields, we are FY 2016 Cont-Perm Mix our largest sector, suffered from in a stronger position for growth in some management issues early 2017. The result of the US presidential CONT in the year but has continued to 67% election created some uncertainty PERM grow with GP up 10%* YoY, driven over potential policy changes 33% by Contract up 20%*. We are now which may influence potential the seventh largest Life Sciences for growth and investment by staffing firm in the US. ICT, our fastest corporates, but we will continue growing business, has continued to FY 2016 Sector Mix to evolve our business to best grow at a rapid pace with GP up service our candidate and clients ICT 46%* YoY and it is now larger than 15% whatever the market. We expect our Energy business, representing LIFE SCIENCES moderate, selective headcount 49% 15% of our GP. We opened new BANKING growth in 2017 in both Permanent offices in Austin and Minneapolis & FINANCE and Contract, with a focus on 25% ENERGY early in the year to focus on ICT 11% improving productivity. opportunities. The low price of oil has continued to impact our
STEVE QUINN USA FY 2016 CEO, USA CONT PERM TOTAL GP +10% -15% --- GROWTH*
AVG. SALES +27% -18% +7% HC
* in constant currency
ICT Engineering Life Sciences Other Energy Banking & Finance 20 CHIEF EXECUTIVE OFFICER’S REVIEW - REGIONAL STRATEGIC REPORT APAC & ME
* We have had notable success in Contract with growth ICT GP +26% YoY in our Australian and Middle East runner books and the * establishment of a Contract business in Japan Permanent Avg Fee +14% YoY to penetrate the Haken market. Contract Runners +17% YoY
Performance in 2016 diversify our business further GP - Growth YoY* Our APAC & ME businesses both (ICT +26%* YoY). faced a very challenging 2016 16.4m -15% We have had notable success economic environment in 2016. in Contract with growth in our Asia has been adversely affected 2015 17.5m -6% Australian and Middle East runner by a slowdown in China impacting 2014 19.1m +12% books and the establishment of a the wider region and both APAC Contract business in Japan. Later 2013 18.9m -4% and the ME have experienced in the year we began the rollout of sharp falls in GP from Energy and our Customer Experience Banking. Excluding Energy, GP for programmes which lays the APAC & ME fell by 4%* YoY. Sales Headcount - YoY foundation for future growth Whilst GP is down, we have across the region. 2016 163 -9% benefited from cost efficiencies and profitability has improved. Expectations for 2017 2015 180 -28% This is our only region weighted The price of crude oil remains low 2014 250 more towards Permanent business, and the global banking market exposing it to greater volatility in remain flat, but changes in either response to external market of these could present risks and factors than may be seen in opportunities for the region. With FY 2016 Cont-Perm Mix other regions. the Trans-Pacific Partnership free trade deal at risk following the CONT 39% APAC OF election of Donald Trump in the PERM 61% 6% GROUP USA, there is further uncertainty in the region. We have right-sized We have responded to these our business and are confident challenges with a management that we have the right team in restructuring in Permanent in the FY 2016 Sector Mix place to address the risks and region to right-size the business opportunities posed by the ICT ENGINEERING until the markets pick up. We 29% 2% market as they arise. LIFE SCIENCES have also invested successfully in 16% ICT in the year as we continue to BANKING ENERGY & FINANCE 17% 36%
JUSTIN HUGHES APAC & ME FY 2016 COO & CEO, APAC & ME CONT PERM TOTAL GP -2% -23% -15% GROWTH*
AVG. SALES +3% -17% -11% HC
* in constant currency
ICT Engineering Life Sciences Energy Banking & Finance CHIEF EXECUTIVE OFFICER’S REVIEW - REGIONAL 21 STRATEGIC REPORT
5 YEAR REVIEW
GROSS PROFIT (£m) OPERATING PROFIT (£m)
2016 258.7 2016 (3) 41.3
2015 235.7 2015 (1) (2) 41.5
2014 218.2 2014 29.8
2013 192.8 2013 21.0
2012 205.3 2012 25.1
( ) ADJUSTMENTS TO OPERATING PROFIT £m 2016 2015 Operating profit after exceptional items 37.8 38.8 Exceptional additional gain on disposal of ITJB - (0.4) Reported operating profit before exceptional items 37.8 38.4 Restructuring (2) (3) 3.5 1.6 Asset impairments and accelerated depreciation (2) - 1.5 Adjusted operating profit 41.3 41.5
CONVERSION RATIO (%) BASIC EARNINGS PER SHARE (pence)
2016 16.0 2016 23.2
2015 17.6 2015 23.2
2014 13.7 2014 16.3
2013 10.9 2013 9.1
2012 12.2 2012 14.1
CASH CONVERSION (%) NOTES (1) 2015 figures exclude the impact of £0.4m exceptional gain 2016 96 (2) 2015 figures were adjusted for Energy restructuring and impairment costs of £3.1m 2015 126 (3) 2016 figures were adjusted for the restructuring of certain sales businesses and central support functions, see page 24 2014 48
2013 80
2012 88
22 5 YEAR REVIEW STRATEGIC REPORT
CHIEF FINANCIAL OFFICER’S REVIEW
We delivered a robust Robust Balance Sheet financial performance despite tough economic £10m Cash conditions and delivered strong year end cash and an improved balance Operating Profit sheet position. ** YoY Group revenue for the year was Flat ALEX SMITH up 6%* to £959.9m (2015: £848.8m) STHREE CFO and up 13% on a reported basis. remained robust at 19.9% Gross profit (‘GP’) increased by (2015: 19.8%) while the average 2%* to £258.7m (2015: £235.7m) contractor GP Day Rate and was up 10% on a reported (‘GPDR’) was down 1%* YoY. basis. FX impacted positively on the revenue and GP growth YoY on a Adjusted operating profit was level reported basis. Growth in revenue YoY at £41.3m (2015: £41.5m) and exceeded growth in GP as the adjusted conversion ratio was the business continued to remix down 1.6 percentage points to towards Contract. This resulted in a 16.0% (2015: 17.6%). Reported decline in the overall GP margin to operating profit was down 2%, 26.9% (2015: 27.8%) as Permanent resulting in a reported conversion has no cost of sales. Contract ratio of 14.6%, down 1.7 represented 67% of the Group GP percentage points. (2015: 64%). The Contract margin
2016 2015(3) Variance Adjusted(1) As reported Adjusted(2) As reported Adjusted As reported £m £m £m £m % % Revenue 959.9 959.9 848.8 848.8 +6%* +13%
Gross profit 258.7 258.7 235.7 235.7 +2%* +10%
Operating profit 41.3 37.8 41.5 38.4 Flat -2%
Profit before taxation 40.8 37.3 40.8 37.7 Flat -1%
Basic earnings per share 23.2p 21.2p 23.2p 20.8p Flat +2%
Proposed final dividend 9.3p 9.3p 9.3p 9.3p Flat Flat
Total dividend (interim and final) 14.0p 14.0p 14.0p 14.0p Flat Flat
Operating profit conversion ratio 16.0% 14.6% 17.6% 16.3% -1.6% pts -1.7% pts
(1) 2016 figures are adjusted for the impact of £3.5m of costs in relation to the restructuring of certain sales businesses and central support functions (2) 2015 figures were adjusted for the impact of £3.1m of costs in relation to the restructuring of the Energy business and the impairment of certain IT assets (3) 2015 figures exclude the impact of £0.4m exceptional gain * in constant currency
CHIEF FINANCIAL OFFICER’S REVIEW 23 STRATEGIC REPORT
The ETR primarily reflects our Adjusted Conversion Ratio (%) Year End Total Headcount geographical mix of profits and
16.0 2,590 an ongoing prudent approach to the treatment of tax losses. 17.6 2,752 The underlying ETR will also be 13.7 2,483 influenced by any changes to 10.6 2,232 taxation rates and legislation which 12.2 2,021 may result from the OECD Base
0 5.0 10.0 15.0 20.0 0 500 1,000 1,500 2,000 2,500 3,000 Erosion and Profit Shifting (‘BEPS’)
2016 2015, 2014, 2013, 2012 2016 2015, 2014, 2013, 2012 Project. We will continue to monitor and assess the impact of any Reported operating costs increased Adjusted profit before tax (‘PBT’) changes as they are implemented. by 12% to £220.9m (2015: £197.3m), for the year was level YoY at Earnings Per Share (‘EPS’) mainly driven by a 3% increase in £40.8m (2015: £40.8m). Statutory Adjusted basic EPS was level YoY at Group average headcount, PBT was £37.3m (2015: £38.1m). 23.2p (2015: 23.2p). Reported basic restructuring costs of £3.5m and EPS increased by 2% to 21.2p circa £13.4m adverse FX impact Adjusting Items - Restructuring (2015: 20.8p). The weighted YoY on the operating costs. During the year, we carried out a average number of shares used restructuring of certain sales Cost Base for basic EPS increased by 1% to businesses and central support 128.3m (2015: 127.0m). Reported 7% functions in response to the adverse diluted EPS were 20.6p (2015: 6% market conditions in certain sectors 19.9p), up 4%. Share dilution mainly 6% and regions. These actions resulted results from various share options in in one-off redundancy costs of place and expected future £3.5m and a cash outflow of £3.1m settlement of certain tracker 79% with a further cash outflow of shares. The dilutive effect on EPS £0.4m expected in 2017. from tracker shares will vary in future periods depending on the Payroll In 2015, we incurred £3.1m of costs profitability of the underlying Property Advertising IT & Professional Other on a restructuring and right-sizing tracker businesses, the volume of the Energy business and the of new tracker arrangements Payroll Costs impairment and accelerated created and the settlement amortisation of certain IT assets of vested arrangements. 17% due to a new system implementation. Adjusted Basic EPS (pence)
These costs arose as part of 23.2 decisions made during the ordinary 83% 23.2 course of business. However, due to 16.3 their nature and collective quantum, the costs have been separately 9.1 14.1 Sales Support Services highlighted to provide further
information to stakeholders to help 0 5.0 10.0 15.0 20.0 25.0 them understand the Group’s Average total headcount was 3% 2016 2015, 2014, 2013, 2012 higher YoY at 2,675 and year-end underlying results for the year (‘Adjusted’). The Group’s adjusted headcount was down 6% YoY at Dividends and Treasury Shares profit figures for the year are 2,590, reflecting a restructuring of Our strategy is to operate a policy presented in various sections of our Permanent business which of financing the activities and this Annual Report. reduced its year-end headcount development of the Group from by 17%. Year-end Contract sales retained earnings and to maintain headcount represented 63% of Taxation a strong balance sheet position. total sales headcount (2015: 58%), The tax charge on statutory PBT up 1% YoY. for the year was £10.1m (2015: The Board has proposed a final £11.4m), representing an effective dividend of 9.3p (2015: 9.3p) per tax rate (‘ETR’) of 27% (2015: 30%). share. When taken together with
24 CHIEF FINANCIAL OFFICER’S REVIEW STRATEGIC REPORT
the interim dividend of 4.7p (2015: in note 1 to the financial statements. year and share buy backs during 4.7p) per share, this brings the total Of the vested tracker shares, we the year and a favourable foreign dividend for the year to 14.0p per settled certain tracker shares exchange translation of the share (2015: 14.0p). This represents during the year for a total net assets. a dividend yield of 5% based on consideration of £4.6m (2015: The most significant item in our the average share price for the £8.5m) which was determined statement of financial position is year (2015: 4%). using a formula in the Articles of trade receivables (including Association underpinning the tracker accrued income) which increased The final dividend, which amounts share businesses. We continue to to £182.6m (2015: £150.7m), with to circa £12.0m, will be paid, settle the consideration in SThree £24m of the increase due to a subject to shareholder approval, plc shares and issued 1.5m new favourable change in foreign on 9 June 2017 to shareholders on shares. Consequently, the exchange rate. Days Sales the register on 5 May 2017. arrangement is deemed as an Outstanding (‘DSOs’) at year-end equity-settled share-based During the year, SThree plc bought reduced by one day to 37.5 days payment scheme under IFRS 2 back shares amounting to £6.8m (2015: 38.5 days). Trade and other ‘Share-based payments’. There is no to satisfy future employee share payables increased from £117.0m charge to the income statement schemes. to £138.9m with £17m due to as the tracker shareholders initially movements in foreign exchange subscribed to the tracker shares at Share Options and Tracker rates, and creditor days were their fair values. We expect future Share Arrangements 19 days (2015: 19 days). tracker share settlements to be (Minority Interests or MI Model) between £5m to £15m per annum We recognised a share-based We started the year with net cash which we intend to settle either payment charge of £2.9m during £6.2m and closed the financial by new issue SThree plc shares or the year (2015: £4.1m) for the year with a higher net cash of treasury shares. These settlements Group’s various share-based £10.0m despite £6.8m of share buy will either dilute the earnings of incentive schemes. An improvement backs. On the reported basis, we plc’s existing ordinary shareholders in performance against the EPS generated lower cash from if funded by new issue of shares or target in the Long Term Incentive operations of £42.2m (2015: will result in a cash outflow if funded Plan (‘LTIP’) triggered an additional £57.3m) due to a higher working via treasury shares. charge in 2015, hence the capital outflow. This resulted in apparent drop in cost this year. lower reported cash conversion Balance Sheet and Cash Flow ratio of 95% (2015: 134%) or 96% We also operate a tracker share The Group’s net assets increased (2015: 126%) on an adjusted basis. model to retain our entrepreneurial to £75.7m at 30 November 2016 management within the business. (2015: £59.4m), mainly due to The cash outflow on capital Further details about the tracker the excess of net profit over the expenditure decreased to £7.2m shares arrangements can be found dividend payments during the (2015: £8.6m), as there was a
Cash Flow Bridge £2.7m £0.6m (£0.7m) (£3.1m) £3.0m (£4.7m) £5.7m (£6.8m) £41.3m (£7.2m)
(£9.0m)
(£18.0m)
£10.0m £6.2m
YE 2015 Adjusted Depn and Share Foreign Share Investments Working Adjusting Treasury Capex Taxes and Dividends YE 2016 Net Cash OP Amort Options & Exchange Options Capital Items Shares Interest Net Cash Other Exercises 2016 + 2015 Purchased
Note 1: All figures are in £’m
CHIEF FINANCIAL OFFICER’S REVIEW 25 STRATEGIC REPORT
significant cash investment in the The Group’s UK-based treasury impacted our 2016 GP by £1.3m prior year on key sales, HR and function manages the Group’s and £0.5m, respectively, per finance systems. We expect a treasury risks in accordance with annum; and operating profit by similar level of capital expenditure policies and procedures set by £0.4m and £0.1m, respectively, in 2017. the Board, and is responsible for per annum. day-to-day cash management; The Board considers it appropriate Income tax payments decreased the arrangement of external in certain cases to use derivative to £8.5m (2015: £10.8m) due to borrowing facilities; the investment of financial instruments as part of its advanced tax payments in 2015 surplus funds; and the management day to day cash management to and dividend payments were of the Group’s interest rate and reduce the Group’s exposure to £18.0m (2015: £17.7m). The cash foreign exchange risks. The treasury foreign exchange risk. The Group outflow from previously recognised function does not engage in does not use derivatives to hedge exceptional items was £0.9m (2015: speculative transactions and does balance sheet and income £3.0m). Due to a weakening of not operate as a profit centre, and statement translation exposure. Sterling against our major currencies, the Group does not hold or use foreign exchange impacted derivative financial instruments for favourably on the cash flows for speculative purposes. The Group’s Other Principal Risks the year with a net positive impact cash management policy is to and Uncertainties of £2.7m (including impact on minimise interest payments by Other principal risks and working capital movements). closely managing group cash uncertainties generally affecting balances and external borrowings. the business activities of the Group Cash Conversion (%) Euro-denominated cash positions are detailed within the strategic section of the Annual Report. 96 are managed centrally using a
126 cash pooling facility which provides In terms of macroeconomic
48 visibility over participating country environment risks, our strategy is to bank balances on a daily basis. continue to grow the size of our 80 international business and newer 88 Foreign Exchange sectors, in both financial terms and 0 20 40 60 80 100 120 140 Foreign exchange volatility geographical coverage. This will 2016 2015, 2014, 2013, 2012 continues to be a significant help reduce our exposure or factor in the reporting of the overall reliance on any one specific Treasury Management performance of the business with economy, although a downturn We finance the Group’s operations the main functional currencies of in a particular market could through equity and bank borrowings. the Group being Sterling, the Euro adversely affect the Group’s We intend to continue this strategy and the US Dollar. key risk factors. while maintaining a strong balance For 2016, currency movements In the view of the Board, there is sheet position. We have a versus Sterling provided a strong no material change expected to committed revolving credit facility tailwind for the reported the Group’s key risk factors in the (‘RCF’) of £50m in place with RBS performance of the Group with foreseeable future. and HSBC. This facility expires in the highest impact coming from May 2019 and was unutilised at the Eurozone countries. Over the year-end (2015: unutilised). We also course of the year, the exchange have a £5m overdraft facility with rate movements increased our RBS. The RCF is subject to reported 2016 GP and operating conventional covenants and the profit by circa £17.6m and £4.2m, funds borrowed under this facility respectively. bear interest at a minimum annual rate of 1.3% above 3 month Sterling Exchange rate movements remain LIBOR giving an average interest a material sensitivity. By way of rate of 1.8% during the year (2015: illustration, each 1 percent 1.8%). The finance costs for the year movement in annual exchange amounted to £0.5m (2015: £0.8m). rates of the Euro and the US Dollar
* Variances in constant currency
26 CHIEF FINANCIAL OFFICER’S REVIEW STRATEGIC REPORT
KEY PERFORMANCE INDICATORS
Financial Key Performance Indicators (‘KPIs’) We measure our progress against our strategic objectives using the following KPIs:
Gross Profit (‘GP’) Total Shareholder Return Group’s tracker share settlement (‘TSR’) formula. WHAT DOES IT REPRESENT A very broad indicator of how HOW IS IT MEASURED WHAT DOES IT REPRESENT Profit after tax before exceptional the business is developing and Generally used by investors to and other adjusting items for the growing over time. assess growth in the share price year attributable to the Company’s HOW IS IT MEASURED vs other companies. Used for the owners divided by the weighted Revenue less cost of sales. Also Group’s LTIP (over a 3 year vesting average number of shares in issue known as Net Fee Income. period). during the year. HOW IS IT MEASURED TSR is defined as share price 2016 2015 growth plus dividends attributable 2016 2015 £258.7M £235.7M to shareholders over a specific 23.2p 23.2p period.
2015 Adjusted Operating Profit 14.8% Contract/Perm Mix (‘OP’) WHAT DOES IT REPRESENT WHAT DOES IT REPRESENT 2016 Having a mix of both Contract and This is a very broad indicator of how (11.6%) Permanent business helps to protect the business is trading and how the Group from cyclical extremes, efficient we are in terms of managing typical of the recruitment sector. our cost base. A key strategic measure and component of the HOW IS IT MEASURED Proportion of GP attributable to Group’s bonus arrangements. Contract and Permanent Adjusted Basic Earnings HOW IS IT MEASURED placements. (‘EPS’) GP less administrative expenses Per Share before exceptional and other 2016 2015 WHAT DOES IT REPRESENT adjusting items. Generally used by investors to 36% assess the returns of a business 33% vs the share price. Used for the 67% 64% 2016 2015 Group’s LTIP (over a 3 year period) £41.3M £41.5M and a key element under the Cont Perm
KEY PERFORMANCE INDICATORS 27 STRATEGIC REPORT
Cash & OP Adjusted OP Adjusted Cash Conversion Ratio Conversion Ratio Conversion Ratio
WHAT DO THEY REPRESENT HOW IS IT MEASURED HOW IS IT MEASURED Calculated as the cash generated Conversion Ratio and Cash Operating profit before exceptional from operations for the year after Conversion Ratio indicate how and other adjusting items stated deducting capex, stated as a efficient the business is in terms of as a percentage of GP measures percentage of operating profit controlling costs and improving how productive consultants are, before exceptional and other consultant productivity, turning how effective we are at controlling adjusting items and is a measure profit into cash or collecting cash. the costs associated with normal of the Group’s ability to convert As such, they are key strategic operations and our level of profit into cash. measures and components of investment for the future. the Group’s bonus arrangements. 96% Focusing on these measures also 2016 16.0% 2016 helps protect the Group in less favourable economic conditions. 2015 17.6% 2015 126%
Operational KPIs Contract Margin People Measures Contract Runners YE Sales Headcount / Churn WHAT DOES IT REPRESENT WHAT DOES IT REPRESENT Increasing margins, day rates and WHAT DOES IT REPRESENT This measure shows progress against fees, are all indicators of business To achieve its strategic growth our Contract strategy at a point in quality and therefore important to plans and expand efficiently the time and is an indicator of future maintain/improve as a niche Group must attract and retain Contract GP when considered in specialist. sufficient headcount, thereby conjunction with average fees. building the experience pool and HOW IS IT MEASURED HOW IS IT MEASURED avoiding re-training. As such, these Contract GP as a percentage of The number of period end are key measures and components Contract revenue. Contractors on placement with of the Group’s bonus arrangements. one of the Group’s clients at the 2016 19.9% These are measures of employee end of the relevant period. retention and also an indicator of 2015 19.8% how well a business is run. Lower 2016 2015 churn will generally result in increased productivity. Headcount 9,078 8,412 is based on full time equivalent heads. Consultant Yield HOW IS IT MEASURED WHAT DOES IT REPRESENT Churn is calculated as the number This is an indicator of the productivity of leavers in a year as a of the Group’s sales headcount. percentage of the average sales headcount. HOW IS IT MEASURED GP dividend by the Group average sales headcount divided by 12. 2016 2,044 HEADS CHURN 38%
2016 2015 2015 2,185 HEADS £9.3K £10.2K CHURN 38%
28 KEY PERFORMANCE INDICATORS STRATEGIC REPORT
RISK MANAGEMENT STRATEGY
The successful Our Enterprise Risk Management • regular oversight by the relevant management of risk is (‘ERM’) framework, processes and Committees; and arrangements help to ensure the essential for us to deliver • reacting quickly to market ongoing monitoring of principal conditions and the cycle. our strategic priorities. risks and controls by the Audit We have integrated ERM processes Whilst the ultimate Committee and Board. Our into our overall strategy, with risk approach is to have an responsibility for risk appetite measures set by the organisational structure, which management rests with Board based on an assessment of allows close involvement of senior its key risks (including reputational the Board, the effective management in all significant risks), to ensure implementation of day-to-day management decisions, combined with a prudent effective risk management and analytical approach, and of risk is in the way we do processes and mitigation actions. clear delegations, all of which help business and our culture. These are regularly assessed by the to align the Group’s interests with Board and Group Management those of shareholders. Board (‘GMB’) through a variety of measures, including KPIs. Enterprise Risk Management (‘ERM’) Further detail is set out in the We believe that the effective Corporate Governance Report. management of risk is based on a Given the Group’s continued mix of ‘top down’ and ‘bottom-up’ expansion into diverse and approaches, which include: increasingly demanding niche/ • our strategy setting process; specialist sectors, the Group’s • the quality of our people and strategic planning and review culture; processes are periodically reviewed to ensure alignment of • established procedures and corporate, sector, regional and internal controls; support goals within the strategic • policies for highlighting and plan and help to mitigate risks. controlling risks;
RISK MANAGEMENT STRATEGY 29 STRATEGIC REPORT
Our Approach to Risk – Governance and Oversight
SThree plc Board – Risk Identification/ Six monthly reviews and annual workshop Oversight/ Appetite/Policy/ Reporting
Audit Committee Four meetings annually – Internal Controls/Processes/ Technical Issues
GMB Six monthly reviews and annual workshop – Operational Issues/People & Culture
Regional, Country, Sector Boards/Managing Directors’ (MDs) Six Monthly reviews Meetings – Region/ Sector Issues/People & Culture
Local Risk Registers Quarterly reviews – Localised Risks/People & Culture
Directors/Function/Business Unit Quarterly – Localised Risks/People & Culture reviews
“We believe that the effective management of risk is based on a mix of a ‘top down’ and ‘bottom-up’ approach.”
30 RISK MANAGEMENT STRATEGY STRATEGIC REPORT
Principal Risks and Uncertainties and Mitigation Strategy
The Group’s principal risks to its business model and the processes through KEY: Same Increased Risk which it aims to manage these are outlined as follows:
Change in Status RISK DESCRIPTION BACKGROUND/CONTEXT CONTROLS/MITIGATION status versus after prior year mitigation Macro-Economic Environment / Cyclicality
A change in the market The performance of the Group The Group is well diversified in its operations conditions adversely has a relationship and across geographies, sectors, and Permanent impacting performance, dependence on the underlying /Contract business. Progress continues to be thereby reducing growth of the economies of the made in increasing our diversification to reduce profitability and liquidity. countries in which it operates in reliance on an economy, geography or sector. Any failure to react to so far as it impacts client and The Group has a flexible cost base that is or to take advantage candidate confidence. This was carefully managed to react swiftly to changes of changes in the particularly the case for the in market activity. This was demonstrated in our economy in a timely Energy and Banking market in reaction to the impacts of the EU referendum manner can result in the year. in the UK and weak markets in Energy and over or under The recruitment sector, in Banking. investment and particular, is highly cyclical and The Group has a strong balance sheet therefore reduce suffers from a lack of visibility with low levels of net debt through the year profitability. which can make even short/ and committed/ flexible debt facilities to medium term planning or target support the business. setting difficult. The results of the The Group is cash generative and requires EU referendum in the UK and low levels of capital investment. Despite all the presidential elections in the mitigating measures, increased macro US have increased the level of economic uncertainties have raised the uncertainty and therefore risk risk status. we face as we enter FY 2017.
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 technology/innovation markets, where there is also strong markets to resist pricing pressure. taking market share competition for both clients and Investment in online presence and and putting pressure candidates. Increasing use of partnering with LinkedIn to improve on margins. social media for recruitment customer and client experience. purposes and a trend towards Setting up project groups to monitor market outsourced recruitment models, developments and introduce structured with associated margin pressures, creativity, so as to help guard against the can also impact. The realisation/ risk of disruptive technology. commercialisation of a disruptive technology or other innovation Increased focus on customers, targeting (e.g. web based, low margin and tracking NPS scored. operators) by either a current or Greater regulatory and compliance new competitor could threaten requirements on Contract are increasing the Group by challenging the the barriers to entry. viability of the current business Despite all mitigating measures,competitive model and therefore the ability pressures and greater prevalence of market to sustain revenue and profits. disruptors have 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 and financial obligations key clients, predominantly in the other financial risks. The Group has a diverse resulting in the write private sector and is always mix of clients and is not financially off of debts. subject to the risk that some dependent on any single client. It has also customers might be unable bolstered its working capital management to fulfil obligations. and credit control processes.
RISK MANAGEMENT STRATEGY 31 STRATEGIC REPORT
Change in Status RISK DESCRIPTION BACKGROUND/CONTEXT CONTROLS/MITIGATION status versus after prior year mitigation Availability of Candidates
Not enough The availability of highly skilled/ Expanding into newer geographies/sectors candidates to fill roles quality candidates is essential to protect against lower candidate to meet client needs, to operating in niche/high availability in more mature markets. leading to a loss of margin markets and changes in Investment in online presence and business and a the other risk areas can affect partnering with LinkedIn to improve customer slowing of growth. candidate supply. and client experience and aid retention.
Contractual Risk
With larger global Clients increasingly require more Management seek to minimise risks when service arrangements, complex or onerous contractual negotiating contracts and ensure that the there may be demand arrangements. The placing of nature of risks and their potential impact is for more onerous con- temporary workers generally understood. Contract approval processes tract terms that can represents greater risk for the with exceptions to standard terms, such as increase the Group’s organisation than Permanent liability or insurance require senior sign off, risk exposure. placements. This risk increases as defined in the Groups’ authority matrix. in more litigious environments. We generally place responsibility for 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.
People / Talent Acquisition / Retention
High churn rates or the The Group is reliant on its ability to A structured induction programme and loss of key talent could recruit, train, develop and retain career development with ongoing training slow our growth and high performing individuals to and competitive pay/benefits structures, reduce profitability. meet its growth strategy. Failure linked to performance. Equity stakes for to attract and retain individuals senior individuals. with the right skill-set, particularly Continual focus on engaging and those who are more senior, may developing key managers to ensure adversely affect the Group’s succession planning. Training and performance. At the same time, development programmes to support the Group’s business model expansion, whilst also providing a rewarding demands flexibility to expand or and challenging career. consolidate, depending on the Greater focus on diversity and inclusion economic environment. agenda and introduction of ‘me@work’ to High churn or the inability to improve the structure of development plans attract key talent can also lead and assist in facilitating more rewarding to insufficient mid and upper careers. managerial bench strength in Despite mitigation, churn rates have terms of breadth of experience generally increased, hence raised risk status. within or outside SThree. As markets improve, the risk of churn can increase.
KEY: Same Increased Risk
32 RISK MANAGEMENT STRATEGY STRATEGIC REPORT
Change in Status RISK DESCRIPTION BACKGROUND/CONTEXT CONTROLS/MITIGATION status versus after prior year mitigation Information Technology / Cyber Risks
A serious system or third The Group is reliant on delivering The Group’s IT infrastructure is regularly party disruption, loss of its service to clients through a reviewed to ensure it has capacity to cope data or security breach number of technology systems with a major data or system loss or security could have a material and on delivering a number of breach, with business continuity arrangements impact on the Group’s key internal projects through third in place. As a result of the heightened risk we operations or project party IT specialists. have now increased our investment in delivery. A malicious cyber-attack which software and penetration testing. compromises the defences of a Important third parties and suppliers provide third party cloud provider/website essential IT and project infrastructure and their could pose significant operational performance/ robustness is monitored to disruption to SThree and/or result ensure business-critical processes or projects in the loss of sensitive data, so are safeguarded as far as is practicably damaging reputation. The possible. increasing prevalence of cyber IT systems and providers are periodically attacks, including our peers, reviewed to ensure they remain effective/safe highlights the increased risk in this and project management teams review risks area. 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 sensitive, compliance failure confidential, sensitive and confidential and personal data are in place could expose the personal data in a number of across the Group as part of its Data Protection Group to potential countries on a daily basis under a and information security policies and legal, financial and variety of laws and regulations. procedures. Where data protection and reputational risk. Introduction of the General Data privacy legislation allows, email monitoring Protection Regulation (‘GDPR’) is undertaken to address areas of concern will necessitate changes to our and to protect confidential information. collection and processing activity, IT systems and providers are periodically by 2018. reviewed to ensure they remain effective/safe. A project team is in place to ensure GDPR compliance, hence there is no perceived increase in the risk level.
Compliance
Non-compliance with The specialist recruitment industry The Group is committed to meeting its laws or regulations can is governed by increasing levels regulatory responsibilities and continues to lead to increasingly of regulation/compliance, which strengthen its training programmes, internal heavy fines/penalties vary from country to country and controls, audit, compliance and other which could expose market to market. This includes processes with respect to legal and us to potential legal, employment laws or regulations contractual obligations, particularly financial or specific to specialist business in higher risk sectors such as Energy. reputational risk. sectors or temporary workers, As employment laws are tightened, this which necessitate pre-employment creates new risks and opportunities. The checks and which may increase Contract market is more heavily regulated the Group’s exposure to potential and changes in legislation (such as changes legal, financial or reputational in managed service company legislation risk. Changes in legislation in the or contract worker rights) may impact the UK (IR35), Netherlands (DBA), as Group. Policies, compliance, on boarding well as increasing our ECM model processes or systems therefore reflect have all heightened risks in specific market or sector needs and best this area. practice, to meet legal or other requirements and minimise risks. The Internal Audit function regularly reviews these to ensure that they are being followed correctly and controls function effectively.
KEY: Same Increased Risk
RISK MANAGEMENT STRATEGY 33 STRATEGIC REPORT
Change in Status RISK DESCRIPTION BACKGROUND/CONTEXT CONTROLS/MITIGATION status versus after prior year mitigation Foreign Exchange (‘FX’)
A significant adverse The Group has significant The Board annually reviews the Group’s movement in FX rates operations outside the UK and is treasury strategy to ensure that it remains may reduce consequently exposed to foreign appropriate. Whilst the Group’s treasury profitability. exchange translation risk due to department proactively monitors FX movements in exchange rates. exposures to ensure that they are minimised, Following the EU referendum in translational impacts of movements in the the UK, there has been increased relative value of GBP are not hedged. volatility in the value of GBP. Despite all mitigating measures, risks have increased due to greater FX volatility created by macro economic uncertainties.
KEY: Same Increased Risk
Risk & Compliance Targets Both financial and non-financial indicators are listed in the table provided within the CEO’s and KPIs are used throughout the below, including how these apply other officers’ sections of this Group to drive results and monitor in a strategic, remuneration or risk Annual Report, where appropriate. activities. The principal non financial context. Further commentary is
Definition and method Strategic/remuneration/ Risk & Compliance 2016 2015 of calculation Risk context Risk Management Aim to achieve Aim to achieve The Group has a well defined The Group’s success is (see also principal a sensible risk/ a sensible risk/ ERM framework embedded dependent on balancing risk risks & uncertainties reward reward throughout the business and reward. To achieve this it above and balance, balance, using an EBITDA measurement has integrated ERM Corporate assessed assessed via scale to assess impact. Risk processes into its overall Governance and via risk map. risk map. appetite levels are set by the strategy, with risk appetite Audit Committee Board and risks/mitigation measures set by the Board. Reports) are periodically reviewed to ensure continued alignment with strategy.
Compliance Range of Range of Contractor compliance Compliance processes are Targets metrics varying metrics targets in respect of client/ regularly reviewed to align (by country/sector) by region, varying by contractor terms, rates/ with changing local legislation, sector, deemed region, sector, duration/types and ID guard against deemed employment or deemed collection are set annually, employment or other risks misclassification employment or plus there is zero tolerance on and significantly mitigate risks risk. misclassification code of conduct breaches in higher risk sectors. Insurance risk. or fines. Targets are Board cover may also be assessed and reviewed strengthened, where periodically. necessary.
Environment/CSR Specific targets, Specific targets, Steadily improving targets Measures are agreed (see also CSR including including are being set to reduce the strategically, but with local Report) diversity and diversity and Group’s carbon footprint implementation parameters, carbon carbon and also make savings in based on specific office footprint footprint energy expenditure. location, age etc. reduction. reduction.
34 RISK MANAGEMENT STRATEGY STRATEGIC REPORT
CORPORATE SOCIAL RESPONSIBILITY REPORT
Across our core business Volunteering we continue to support Over instances of skills-based volunteering which has individuals, organisations positively impacted over 4,880 beneficiaries and the wider economy. 980 since 2011. Our people help resource life changing sectors and specialist STEM (Science, Fundraising and Corporate Giving Technology, Engineering In our eight year partnership with SOS Children’s and Mathematics) roles £900K Villages we have donated over £900k. that enable industries and countries to thrive. Diversity and Inclusion In line with this, our Corporate Social APSCo Diversity and Inclusion Awards Responsibility (‘CSR’) for Excellence Winner 2016. vision remains focused on ‘Transforming Lives through Skills and Work’. We know that CSR creates Supportive Opportunities to Tackle Youth Unemployment additional value for the Seven young people employed at SThree through CSR; community, employees, 11 apprenticeships, 44 work experience placements customers and investors. 7 and a one year paid internship since 2013.
Environment Our Carbon Disclosure Project score improved from an E to B a B this year. We have expanded the scope of our carbon footprint and reduced total emissions by 8% on 2015.
CORPORATE SOCIAL RESPONSIBILITY 35 STRATEGIC REPORT
Community Our central themes remain STEM expertise into the recently CSR website, the intranet, emails “Employability” and “Aspiration”, launched SThree Foundation. from the CEO, and can include to make the best use of our these in their appraisals. We encourage employees to lead recruitment skills, knowledge and community activities so that they The total value of the community networks to help people from can gain personal and professional programme for the year was £385K underprivileged backgrounds into development through projects. which includes charitable giving, work. This year we have further Individuals are recognised for their volunteering, and employee time aligned CSR with our corporate achievements through a dedicated to manage activities. strategy by incorporating our
SThree Foundation In November, we launched the 50 A-Level students to support over SThree Foundation in collaboration the next two years to help them with charity Generating Genius, transition into STEM higher education, and invited clients and partners jobs and apprenticeships. to the launch event. Of the cohort of 50 students, over The SThree Foundation has a 70% are female to address the mission to support bright young current gender imbalance going people from underprivileged and into these sectors. diverse backgrounds into the Gary Elden OBE and Dr Tony Sewell CBE, “Generating Genius and SThree’s Founder and CEO of Generating Genius, STEM industries. Future Talent programme is at the launch of the SThree Foundation, in November. Through our Future Talent enabling us to show students how programme, set up in partnership vital STEM skills will be to their future. This partnership model is something with Generating Genius, we have The sixth form is a critical landmark we want to showcase to other engaged school students who for making career decisions, and employers and how CSR can have an interest in STEM and who this programme helps them ‘join become front and centre of are academically strong, from a up the dots’ and realise that STEM business planning.” range of schools in disadvantaged skills can lead to their future Dr Tony Sewell CBE, Founder areas in London. We have selected employability. and CEO, Generating Genius
Volunteering and Supportive Opportunities Employees have given nearly 1,000 in our business who have been instances of skills-based volunteering recruited via CSR workshops. which has positively impacted over This year we have provided a one 4,880 beneficiaries, since 2011. This year paid internship for Mayowa, year 400 employees took part to SThree University Scholar at benefit 1,720 people. Coventry University, and as part We have set up 11 apprenticeships of this, set up a one month
since 2013 in partnership with Olida Khanom and Marie Broad, respective secondment at Subsea 7. We charity City Gateway to provide a winners of Apprentice of the Year and have funded 15 UK student supportive start for young people Apprentice Line Manager of the Year, bursaries and two fully funded City Gateway Ball. with limited qualifications and help university scholarships for young reduce youth unemployment. Of the Over the last four years we have women who grew up in an ten who have completed their run 44 supportive work experience SOS Children’s Village in Africa apprenticeships, four are permanently placements. We currently have since 2010. employed in our business. three young people employed
36 CORPORATE SOCIAL RESPONSIBILITY STRATEGIC REPORT
Fundraising and Corporate Giving This year we have donated over Economic and Social Council of on the Rights £163k to SOS Children’s Villages, the United Nations and is a of the Child. which brings our eight-year member of the Child Rights Action This year partnership total to £900k. Group. By partnering with SOS projects Children’s Villages, we show our SOS Children’s Villages has include: active support for the UN Convention consultative status with the
Zambia • Continued long term support for locally made computer tablets • In October, two employees Jeni Chipata Village and the SThree with solar panels for charging; Morrison and Carrie Beeks spent house including ongoing child • Sports and playground a week in the Chipata Village sponsorship; equipment in dedication to and set up a new library with • Advancing education in Chipata Andy Nimmo (former colleague educational books. through an investment into who sadly passed away in 2015);
Brand and Other Initiatives • The USA continued regular • To mark International Women’s across the border to Nepal and fundraising activities, including Day, we provided funding for over get children to school safely. ‘Auction of Promises’ events, to 60 SOS Mothers and Aunts to • Employees in Germany and meet their $100K two year target attend the National Training France continue to raise funds to fund a computer lab for the Centre in Phnom Penh, Cambodia. for local Villages and this year we Roosevelt Centre, SOS Children’s • We funded Christina’s (who grew started a new partnership with Villages Illinois. The Chicago office up in an SOS Village) second SOS Children’s Villages Philippines. also hosted a Careers day for year Business Administration • In Amsterdam and Paris children and staff from the degree in Malawi. employees gave up a day to call Lockport Village. • Funding towards schools fees and their business contacts to gain • Our Progressive Global Energy medical provision for 80 children support for the charity, and in division have led a campaign in Qodsaya, Syria. London SOS employees took with partners to fund solar panels • Funded a school bus in Bhimtal, part in charity ‘Sales’ training. which will supply sustainable India, to help prevent trafficking energy for Gulu Village in Uganda.
Syria Relief In response to the emergency £14.5k to renovate a Child Friendly children suffering from severe situation in Syria, we have worked Space in Aleppo to provide post-traumatic disorders. with charity Syria Relief to raise psychosocial support for 200
Payroll Giving This year we have expanded our any UK registered charity of their account to support a number UK payroll giving scheme so that choice or set up their own charity of charities. employees can choose to support
Workplace Diversity and Inclusion At SThree promoting inclusion and the same. We strive to promote a This year we launched Hyden - an diversity is at the heart of everything positive and inclusive work inclusive recruitment offering, that we do. We are committed to environment where diverse opinions provides businesses with diverse recognising and developing our and perspectives are valued and a talent for their senior leadership talent and supporting our clients, true meritocracy exists. roles. Hyden currently services the candidates and community to do creative and media industries with
CORPORATE SOCIAL RESPONSIBILITY 37 STRATEGIC REPORT
a hope to expand this for all SThree At the end of 2015 we commissioned SThree, and used this insight to customers as the brand grows. an external company to review inform our diversity and inclusion how inclusive it feels to work at strategy.
Gender Classification We have maintained a focused As at 30 November 2016 approach on the development Category Male % Female % of our female talent throughout Directors of SThree plc 6 67% 3 33% 2016, with specific performance objectives cascaded throughout Directors / LLP Partners 46 81% 11 19% the business to increase female Employees 1415 55% 1137 45% representation at our business manager level roles. We have also We continued with our global employees returning to work after ensured that females at team mentoring programme in 2016, maternity leave. We also received manager and business manager matching 170 mentees globally. a Tommy’s accreditation for our level are tracking personal This has had a positive impact on Maternity Programme. retention rates, with mentees more development objectives. This has Inclusivity champions have been than twice as likely to stay in the been instrumental in seeing female established in a number of regions, business. representation in our business helping to establish employee manager roles increase by Our Maternity Buddy Scheme has insight, and drive action. over 5% in 2016 alone. played an integral role in 79% of
Diversity Activities in the Community • Over the last few years SThree planning, and involvement in Day we held a global suit drive has developed a strong the selection of candidates put to collect over 300 ‘interview partnership with the Powerlist forward to the leadership ready’ outfits to help unemployed Foundation which includes CEO programme with Deloitte. jobseekers through a range of mentoring, strategic business charities across the world. • To mark International Women’s
Talent and Leadership In 2016 we made strong progress in and how to develop them. Coupled Our employee value proposition inclusivity by enabling our managers with the embedding of our has also made an impact by to make selection and promotion ‘me@work’ platform - a technology highlighting the real value of our decisions based on consistent platform that we have invested work - not only on the lives of the and objective criteria, removing into to support employee candidates and managers we unconscious bias and focussing on development - and through work with, but also on their behaviour. In recent years, we have our performance management customers and users - and the invested in identifying the right process, employees are set up many ways in which individuals competencies and characteristics for success from day one. can succeed at SThree. of our future leaders, how to attract
Employee Engagement In 2016 we continued to measure management, enabling managers We have spent time understanding, and positively impact employee at all levels to have structured and mapping and reviewing the engagement at all levels within the meaningful conversations with their employee journey and experience Group, focussing on the areas our people. To maximise engagement, through a number of forums people tell us are most important to our Learning and Development including global workshops and them, including career progression team have led courses to build our re-designed on-boarder and and personal growth. management capability and best leavers’ surveys. This has helped us practice. The platform also provides identify areas for improvement and In January we launched ‘me@work’ transparency and fairness. innovation and feed outputs into to focus on performance, personal our people strategy. development and career
38 CORPORATE SOCIAL RESPONSIBILITY STRATEGIC REPORT
Human Rights The Group undertakes appropriate possible, that none are in no such issues impacting the checks on suppliers, clients, contravention of any human Group’s business. candidates, etc., to ensure, as far as rights issues. As such, there are
Environment We are aware of the impact that ever increasing and governments is an opportunity for businesses in our building energy usage and working towards the Paris transitioning to a low-carbon future. business travel have on the planet. Agreement to limit global warming With the impacts of climate change to below 2°C, we believe that there
Mandatory Reporting Tonnes of CO2e Emissions In 2016 we worked with Carbon Baseline % change Source Smart to ensure compliance with the ‘12/’13 ‘14/’15 ‘15/’16 (baseline) greenhouse gas (‘GHG’) emissions Natural gas 195 228 154 -21% reporting requirements of The Scope Companies Act 2006 (Strategic and 1 Leased transport 855 443 388 -55% Directors’ Reports) Regulations 2013. Purchased electricity We continue to increase the breadth Scope 2,384/ n/a (market/location 1,948 1,794 of our reporting and for 2015/16 2 1,862 /4% based)2 have added global scope 3 emissions for business travel, waste Water 122 247 71 -42% and paper for the first time and Business travel 1,400 1,639 1,673 19% have re-baselined our historic Scope Paper 37 44 44 19% reporting accordingly. 3 Following a financial control Waste 20 24 24 19% approach to defining our Electricity T&D 156 147 138 -12% organisational boundary, our calculated GHG emissions1 from Total tonnes of CO2e n/a n/a 4,876 n/a business activities in the reporting (market based) year 1 December 2015 to 30 Total tonnes of CO2e 4,733 4,565 4,354 -8% November 2016 can be found in (location based) this table. Number of employees 2,248 2,632 2,686 19% Our carbon footprint has decreased Tonnes of CO2e per by 8% compared to the baseline 2.1 1.7 1.6 -23% year as we work to rationalise our employee estate – and by 39% on a per m2 basis as we grow our business.
1 The GHG emissions included have been calculated following the WRI ‘GHG Protocol’, ‘Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance’ (Defra, October 2013) and ISO 14064 – part 1. 2 This work is partially based on the country-specific CO2 emission factors developed by the International Energy Agency, © OECD/IEA 2016 but the resulting work has been prepared by Carbon Smart Limited and does not necessarily reflect the views of the International Energy Agency.
Carbon Disclosure Project (CDP) This was our third consecutive year active management of the up from an E in 2015 to a B in in disclosing our environmental long-term sustainability of our 2016. By way of comparison, the performance to CDP, who this year operations. We made a significant average respondent score was C. recognised our move towards improvement in our score, moving
CORPORATE SOCIAL RESPONSIBILITY 39 STRATEGIC REPORT
Energy Usage in our Buildings We continue to take steps to We have saved approximately 46 This year, we have also increased address our building energy tonnes of CO2 this year with further the proportion of renewable consumption. One focus area is IT, reductions and efficiencies in our electricity used at our where we are rolling out energy data centre on our journey to Birmingham office. saving measures, such as virtualising more Cloud services. an increasing number of servers.
Business Travel As a global organisation, business continuing to improve our video under this scheme are travel is unavoidable, however conferencing (VC) facilities, we carbon offset. we are taking steps to minimise intend to continue this trend. This year another 12 UK employees our impact through continuing to In the UK, we are gradually signed up for the cycle scheme reinforce and communicate our reducing our car fleet, and have to take advantage of a tax-free travel policy. We have already seen launched a new salary sacrifice bicycle, which helps improve a significant decrease in travel for car scheme that encourages the productivity while also reducing internal meetings and, by use of lower emission cars. All cars travel emissions.
Waste and Resources This year we shifted to 100% We are also reporting on our waste We continue to donate IT recycled paper across the UK and recycling performance for the equipment where we can for and are continuing this rollout first time this year. Our entire global charity or dispose of redundant across our European offices. We estate now has recycling facilities equipment to comply with the are actively reducing our paper in place and we introduced food Waste, Electrical and Electronic consumption, for example by waste recycling at our head office. Equipment Directive. reducing the use of business cards.
Carbon Offsetting We offset scope 1 and 2 emissions projects: Gold Standard Ugastoves Standard wind power project of our 2015 global carbon footprint in Uganda, and a Verified Carbon in India. by investing into two ClimateCare
Awards and Memberships • Gary Elden honoured with an • Apprentice of the Year and give advice and mentoring for OBE for his work in Diversity Apprentice Line manager of companies new to CSR; and Business; the Year, City Gateway 2016; • Recognised by SOS Children’s • APSCo Diversity & Inclusion Awards • FTSE4Good for eight years; Villages UK as a Key Partner for Excellence Winner 2016; • Heart of the City Contributor, we in 2016.
Targets and Commitments for the Year Ahead Having met our targets for 2016, a programme to earmark several The Group is closely monitoring the focus for 2017 will be developing roles for unemployed young gender pay reporting regulations the SThree Foundation including people as part of our CSR and work is well advanced to generating income. We are asking commitment. ensure compliance. Gender based employers to host one week STEM We are launching a new targets are incorporated in the insight placements during the partnership with From Babies Group’s long-term incentive plan. school holidays. In preparation for with Love, to provide gifts for staff We are developing a sustainability this, we are running workshops at around the world on the arrival of a strategy and will complete the final SThree to help students prepare. new baby, whereby 100% of profits rollout of FSC standard recycled In light of the Apprenticeship go to SOS Children’s Villages. We paper across our global offices. Levy we are reviewing a blended also remain committed to reaching We also plan to introduce approach for new and existing £1m for SOS Children’s Villages managed print to reduce paper employees, and will continue our through fundraising. waste throughout our business. existing entry level apprenticeship
40 CORPORATE SOCIAL RESPONSIBILITY GOVERNANCE
CHAIRMAN’S GOVERNANCE OVERVIEW
I can confirm that the Group as well as seeking to encourage complied with all sections of the employee share ownership more Code throughout the year and generally. Accordingly, a resolution to date of this report. Further detail for the tracker share arrangements on how the Group has applied is again being put to shareholders the principles and provisions of the at the forthcoming AGM in Code is set out in the Corporate April 2017. Governance Report. We recently conducted a shareholder consultation process The Board believes that high on our remuneration policy, standards of corporate governance for which I am pleased to say are intrinsic to the Group’s strategy, CLAY BRENDISH, that shareholders expressed CHAIRMAN culture and values, which are their overwhelming support. We founded on integrity, professional continue to evolve this process, excellence and sustainability. High DEAR SHAREHOLDER, combining it with the previously governance standards underpin well received governance lunches the objectivity of our processes in I am pleased to present and other investor meetings support of financial and operational to you the Chairman’s hosted. All of these combined, risk management, the design and lead us to hope that investors Governance Overview operation of remuneration will continue to raise any future section of the Annual structures, succession planning, as concerns directly with the well as our work on diversity and Report and report on Company well in advance values and provide the basis for compliance with the UK of any AGM vote. the accountability of senior Corporate Governance management to the Board As Chairman, I take primary Code (the ‘Code’). and of the Board to the responsibility for the Group’s Company’s shareholders. governance arrangements and remain confident that To deliver on our growth plans, we our proactivity on shareholder continue to back our home grown engagement and high standards entrepreneurial talent via the of corporate governance stand Group’s established tracker share us in good stead. model (‘Minority Interest’ or ‘MI’),
CHAIRMAN’S GOVERNANCE OVERVIEW 41 GOVERNANCE
Board and Committees’ Non Executive Directors School, plus mentoring by NEDs, Evaluation On 1 July 2016 we welcomed which are all key parts of our Our last external Board evaluation Denise Collis to the Board and development programme. was completed in March 2015, Remuneration Committee, to Finally, I would again like to thank although with recent changes to replace Tony Ward as Committee our employees for their valued the Board we decided to conduct Chair from 1 September 2016. contribution and commitment. This an internal evaluation for FY 2016. Denise was previously Chief People has played a key part in helping This consisted of one on one Officer at Bupa (British United the Group to deliver against meetings between myself and all Provident Association Limited), the several market headwinds and Directors to discuss what was global healthcare business and macro uncertainties this year. working well and what was not. Key prior to that held senior HR roles at learnings from this will be factored a number of leading organisations into our Board and Committee including 3i Group plc, EY, Standard arrangements during FY 2017. Chartered Bank and HSBC. She is also a Non Executive Director CLAY BRENDISH Given the above, we remain and Rem Com Chair at Connect Chairman confident that, overall and Group PLC. Her breadth of senior 20 January 2017 individually, the performance of the HR and remuneration experience Board, each Committee and each has already been of great benefit. Director was and is effective and Denise also sits on the Nomination that all Directors demonstrate full Committee. commitment in their respective roles. Tony Ward, who joined the Group in 2006, retired as a NED and Senior Management and Succession Independent Director on Planning 30 September 2016, having Gary Elden, CEO and the regional completed 10 years with us. We CEOs Steve Quinn and Justin are very sad to see Tony go and Hughes, are now well established will miss his valuable contribution at in their roles and driving the Group, both the Board and Remuneration the USA and APAC & ME businesses, Committee. respectively, reflecting our strategic Following Tony’s departure, Fiona priorities. Recognising the need to McLeod was appointed as the provide senior backing to our Senior Independent Director project streams we have from 1 October 2016. broadened Justin Hughes’ role, appointing him as Chief Operating
Officer from 1 December 2016. To Diversity and Values Our initiatives in these areas remain further strengthen and support our critically important to instilling Executive team, we also made two Group culture and reducing job changes below Board level, churn over the long term, with creating a CEO Continental further steady progress being Europe and Chief People made towards our targets as part Officer role. of the ‘Identity’ project. Specific Work continues, directed by the targets are disclosed in the Nomination Committee, to review Strategic Report. the capabilities of our senior management team for Executive Development initiatives are or other key Group roles and to focused on ensuring that there identify the next leadership cohort, is an appropriate management with Non Executive Directors pipeline at all levels, with tailored (‘NEDs’) continuing to act courses developed internally, as as mentors. well as via Henley Management College or Columbia Business
42 CHAIRMAN’S GOVERNANCE OVERVIEW GOVERNANCE
BOARD OF DIRECTORS & SECRETARY
Appointed: July 2008 Strategy Officer, he had responsibility Experience: Gary Elden was for the expansion of the Group’s appointed to the Board having international operations and been with the Group since 1990, non-ICT disciplines. In June 2012, he when he joined Computer Futures. was appointed as Deputy Chief He has held a number of senior Executive Officer and took over positions, including that of founding from Russell Clements as Chief GARY ELDEN OBE Managing Director of Huxley Executive Officer on Chief Executive Officer Associates. In his role as Chief 1 January 2013.
Appointed: May 2008 these positions he was Managing Experience: Alex Smith joined Director of WH Smith’s Travel Retail SThree having held a number of business and held senior financial senior financial and operational roles at Travelodge and Forte PLC. roles in the leisure and retail sectors. Alex has a degree in Economics He previously held the position of from Durham University and is an Integration Finance Director at TUI Associate of the Institute of ALEX SMITH Travel PLC and he was Finance Chartered Accountants in Chief Financial Officer Director of First Choice’s UK England & Wales. Mainstream business. Prior to
Appointed: June 2012 Energy. He is currently based in Hong Experience: Justin Hughes was Kong and is responsible for the appointed to the Board having strategic growth of APAC & ME. joined Progressive Recruitment in Justin has an Honours Degree in 1994. He has held several senior Economics from Manchester positions including that of Sales Polytechnic and is a graduate of Director, Managing Director of the Senior Executive Program at JUSTIN HUGHES Progressive, and Group Managing Columbia University, New York. Justin COO & CEO, APAC & ME Director where he led the was appointed as Chief Operating international expansion of Officer from 1 December 2016, in Progressive and Progressive Global addition to his regional remit.
BOARD OF DIRECTORS & SECRETARY 43 GOVERNANCE
Appointed: June 2012 he was appointed CEO of the USA Experience: Steve Quinn joined where he is now based in New York. SThree in 1996 having started at Steve has a degree in Economic Progressive Recruitment. He has History from Queens University held a number of senior positions Belfast and is a graduate of the in the company including that Senior Executive Program at of Managing Director of Real, Columbia University, New York. He STEVE QUINN and Group Managing Director. In also holds a Postgraduate Diploma CEO, USA 2012, he became COO and was in Law from Nottingham. appointed to the Board. In 2013,
Appointed: May 2010 Chairman of CMG plc, a European Experience: Clay Brendish, CBE ICT company that was established joined the SThree Board in May in 1964. Clay’s appointment as 2010 as Non Executive Chairman. Deputy Chairman followed CMG’s Clay is currently Director of the Test merger with Admiral plc in June and Itchen Association Limited. In 2000. Prior to the merger Clay was December 2012, Clay was Executive Chairman of Admiral CLAY BRENDISH appointed a Trustee of the Wessex plc which he co-founded in 1979. Chairman Chalk Stream and Rivers Trust. Admiral plc employed over 2500 In May 2001, Clay retired as Deputy people in eight countries.
Appointed: July 2014 and the Governance and Experience: Fiona MacLeod was Nominations committees. She is appointed to the SThree Board and also a Non Executive Director of all Committees in July 2014. She was Denholm Oilfield, where she sits on appointed Senior Independent the Remuneration, Audit and Director from 1 October 2016. Nomination Committees. She also Fiona is a former Senior Executive sits on the Development Board of FIONA MACLEOD at BP, with 23 years’ international Pancreatic Cancer UK and Chairs Non Executive Director Energy sector experience, and has the Board of Women’s Fund for (Senior Independent Director) sat on a range of global JV and Scotland. She previously spent five Investment Boards. Fiona sits on the years on the New York City Board Board of Clydesdale Yorkshire Bank of the global microfinance where she is a member of the Risk organisation, SWWB.
Appointed: July 2016 Committee and a member of the Experience: Denise Collis was Advisory Council at the British Heart appointed to the SThree Board, Foundation, and sits on two Nomination Committee and University Business School Advisory Remuneration Committee on 1 Boards. Previously, Denise was Chief July 2016, and became Chair of People Officer for Bupa. She has the Remuneration Committee on extensive international Human DENISE COLLIS 1 September 2016. Denise is also a Resources and executive Non Executive Director Non-Executive Director and Chair of committee experience, and has the Remuneration Committee at also held senior roles in 3i Group Connect Group plc. In addition, PLC, EY, Standard Chartered plc she is Chair of the Remuneration and HSBC.
44 BOARD OF DIRECTORS & SECRETARY GOVERNANCE
Appointed: October 2015 Financial Officer of BP’s Aviation Experience: Anne Fahy was Fuels business. During her 27 years appointed to the SThree Board, at BP, Anne has gained extensive the Nomination Committee and experience of global business, as Chair of the Audit Committee developing markets, risk in October 2015. Anne is also Non management, internal control, Executive Director and Chair of the compliance and strategy ANNE FAHY Audit Committee at Interserve, the development in BP’s aviation, Non Executive Director international support services and petrochemicals, trading and retail construction company and at sectors. Anne is a Fellow of the Nyrstar, a global multi-metals Institute of Chartered Accountants business, with a market leading in Ireland, having worked at KPMG position in zinc and lead. Prior to in Ireland and Australia prior to joining SThree, Anne was Chief joining BP in 1988.
Appointed: May 2008 research agency and became MP Experience: Nadhim Zahawi, for Stratford on Avon in May 2010. MP was appointed to the SThree He is a member of the Foreign Board, the Remuneration and Affairs Select Committee. He is the Audit Committees in May 2008, author of “Masters of Nothing – The and to the Nomination Committee crash and how it will happen again in September 2015. Nadhim is the unless we understand human NADHIM ZAHAWI former CEO and co-founder of nature”. He is a trustee of UpRising Non Executive Director YouGov plc, a leading and holds a degree in Chemical international online market Engineering from UCL.
Appointed: October 2006 including Intertek Group plc, BPB Experience: Steve Hornbuckle plc, Kidde plc, Railtrack Group plc, joined the Group as Company London & Manchester Group plc Secretary in October 2006, taking and English China Clays plc. Steve charge of Investor Relations is a Fellow of the Institute of matters in 2011 and was appointed Chartered Secretaries (‘ICSA’), sits Legal Director in 2013. Steve has on the ICSA Company Secretaries’ STEVE HORNBUCKLE over 25 years of company Forum and Investor Relations Group Company Secretary secretarial experience, having Society Policy Committee and was and Legal Director held senior positions within a voted Company Secretary of the variety of listed companies, Year in 2011.
BOARD OF DIRECTORS & SECRETARY 45 GOVERNANCE
DIRECTORS’ REPORT
The Strategic Report, including the financial position of the Company CEO’s and other officers’ sections and the Group. By their nature, of this Annual Report, provide these statements involve information relating to the Group’s uncertainty since future events and activities, its business, governance circumstances can cause results and strategy and the principal risks and developments to differ from and uncertainties faced by the those anticipated. business, including analysis using The forward-looking statements financial and other KPIs where reflect knowledge and information necessary. These sections, together available at the date of with the Audit Committee, preparation of this Annual Report STEVE HORNBUCKLE Nomination Committee, Directors’ and nothing in this Annual Report GROUP COMPANY Remuneration, Corporate should be construed as a profit Governance and Corporate Social SECRETARY forecast. Responsibility (‘CSR’) Reports, provide an overview of the Group, The Directors confirm that they The Directors present their including environmental and have carried out a robust Annual Report on the employee matters and give an assessment of the principal risks indication of future developments activities of the Company facing the Company and the in the Group’s business, so Group, including those that would and the Group, together providing a balanced assessment threaten the business model, with the financial of the Group’s position and future performance, solvency or statements for the year prospects, in accordance with the liquidity and explained how they latest reporting requirements. The ended 30 November 2016. are being managed or mitigated Group’s subsidiary undertakings, The Board confirms that (see analysis of key risks, mitigation including branches outside the UK, and impact on strategy within the these, taken as a whole, are disclosed in the notes to the Strategy section). are fair, balanced and financial statements. understandable and that Information on the Company, The purpose of this Annual Report including legal form, domicile the narrative sections of is to provide information to the and registered office address is the report are consistent members of the Company, as a included in note 1 to the financial with the financial body. The Company, its Directors, statements. employees, agents or advisers do statements and accurately not accept or assume responsibility Results, Dividends, Going reflect the Group’s to any other person to whom this Concern and Post Balance document is shown or into whose performance and Sheet Events hands it may come and any such financial position. Information in respect of the responsibility or liability is expressly Group’s results, dividends and disclaimed. This Annual Report other key financial information contains certain forward-looking is contained within the Strategic statements with respect to the Report and other officers’ sections operations, performance and the of this Annual Report. A going
46 DIRECTORS’ REPORT GOVERNANCE
concern and viability statement takeover, except that provisions of Although there are a number of is included within the Corporate the Group’s share plans and different businesses in which Governance Report. No significant tracker share arrangements may individuals are invited to invest, events have occurred since the cause options, awards or tracker each invitation will generally be on year end. shares to vest on a takeover. similar terms to that used previously and it is therefore deemed Directors and their Interests Tracker Share Arrangements appropriate to put only one The Directors of the Company, (‘Minority Interests or MI Model’) resolution to shareholders each including their biographies, are The Group regards its tracker share year, with each authority being shown within the Board of Directors model as a key factor in its success granted for 5 years, although section of this Annual Report, with and plans to create more of these automatically renewed at each further details of Board Committee going forward, on similar terms to following AGM, or any membership being set out in the those previously created, subject to adjournment thereof. Corporate Governance Report. shareholder approval. The proposed resolution, together All Directors served throughout the Entrepreneurial employees within with the standard terms upon financial year, except as disclosed, the Group often create ideas for which tracker shares are normally and in accordance with the UK new business opportunities, which issued, are outlined within each Corporate Governance Code, will the Group may elect to pursue notice of AGM. retire at the 2017 AGM and submit and develop. Historically, the Group themselves for election or Further information on the tracker has engaged with such individuals re-election, as necessary. Further share arrangements is disclosed in in setting up new businesses for information is also contained in the note 1 to the financial statements. the purpose of pursuing these Notice of Meeting. new ideas, which have typically Share Capital and Share Rights Other than employment contracts evolved organically out of one of Details of the share capital of and tracker share LTIP/JOP loans, the existing SThree businesses, with the Company, together with none of the Directors had a the relevant managers then given movements during the year are material interest in any contract the opportunity to manage and shown in the notes to the financial with the Company or its subsidiary develop that new business. statements. undertakings. Key terms of the Typically, those managers of the Directors’ service contracts, new SThree business will be able to The rights and obligations attached interests in shares and options and invest, at the Company’s discretion, to the Company’s ordinary shares tracker share loans are disclosed in in the new venture and share in its are contained in the Articles. the Directors’ Remuneration Report. success as well as the risk of failure. Ordinary shares allow holders to receive dividends and to vote at As in prior years, only key individuals Essential Contractors and general meetings of the Company. are invited to invest in the creation Implications Following a They also have the right to a return of any new tracker share business. Change of Control or Takeover of capital on a winding up. In order to receive equity The Group has business ownership such individuals must relationships with a number of There are no restrictions on the size invest at fair value and be actively contractors but is not reliant on any of holding or the transfer of shares, engaged in that business for an single one and there are no which are both governed by the agreed term. Should the individual significant agreements to which general provisions of the Company’s ultimately wish to dispose of their the Company is party to that take Articles and legislation. Under the stake, the Company effect, alter or terminate upon a Articles, Directors have the power retains pre-emption rights. change of control of the Company to suspend voting rights and the right to receive dividends in following a takeover offer, with the The minimum term for each new respect of ordinary shares, as well exception of the RBS and HSBC tracker share stake is set at the as to refuse to register a transfer in revolving credit facility agreements. outset and will normally be 5 years, circumstances where the holder but will never be less than 3 years, The Company does not have of those shares fails to comply with in order to allow the Group agreements with any Director a notice issued under Section 793 flexibility to adapt to the individual or employee that would provide of the Companies Act 2006. The needs of its brands and businesses compensation for loss of office Directors also have the power to and differing rates of growth. or employment resulting from a refuse to register any transfer of
DIRECTORS’ REPORT 47 GOVERNANCE
certificated shares that does not mixture of market purchased and individual Director be convicted satisfy the conditions set out in new issue shares. or, in an action brought by the the Articles. Company, where judgment is Accordingly, some 2,323,577 shares given against the Director. The The Company is not aware of any were purchased in the market Group currently has in place and agreements between shareholders during the year, to be held as has maintained such a policy that might result in the restriction of treasury shares. The Directors will throughout the year, which will transfer of voting rights in relation seek to renew the authority to reimburse the Company for to the shares held by such purchase up to 10% of the payments made to Directors shareholders. Company’s issued share (including legal fees), for all capital at the next AGM. admissible claims. The Board also Authority to Issue or make confirms that there are appropriate Director’s Indemnities, Director’s Purchases of Own Shares procedures in place to ensure that and Officers’ Insurance and including as Treasury Shares its powers to authorise Directors’ Conflicts of Interest and Dilution conflicts of interest are operated Section 236 of the Companies Act The Company is, until the date of effectively. 2006 allows companies the power the forthcoming AGM, generally to extend indemnities to Directors and unconditionally authorised to against liability to third parties Related Party Transactions issue and buy back a proportion (excluding criminal and regulatory (‘RPT’) of its own ordinary shares. penalties) and also to pay Details of any RPT undertaken The Company’s policy is to comply Directors’ legal costs in advance, during the year are shown in the with investor guidelines on dilution provided that these are reimbursed notes to the financial statements. limits for its share plans by using a to the Company should the
Listing Rules (‘LR’) Requirement Confirmation
A statement of interest capitalised by the Group during the period and an indication Not applicable of the amount and treatment of any related tax relief.
Any information required by LR 9.2.18R (publication of unaudited financial information) Not applicable regarding information in Class 1 circular or prospectus or a profit forecast and estimate.
Details of any long term incentive schemes as required by LR 9.4.3R regarding See Directors’ Remuneration information about the recruitment or retention of a Director. Report (page 52)
Details of the waiver of emoluments by a Director, both current and future. Not applicable
Details of the allotment of equity securities to equity shareholders otherwise than in proportion to their holdings and which had not been specifically authorised by the Not applicable shareholders. This information must also be given for any major unlisted subsidiary.
Where the Company is a listed subsidiary, details of any participation by its parent in Not applicable any share placing during the period.
Details of any contract of significance between the Company or one of its Not applicable subsidiaries and a Director or a controlling shareholder.
Details of contracts for the provision of services to the Company or one of its Not applicable subsidiaries by a controlling shareholder during the period under review.
Details of any arrangements under which shareholders have waived or agreed to Not applicable waive dividends.
A statement of the independence provisions and compliance, or not, where there Not applicable is a controlling shareholder.
48 DIRECTORS’ REPORT GOVERNANCE
Financial Instruments and CSR, including Diversity, Human employees, every effort is made Research and Development Rights & Environmental matters to ensure that country health, and Information and policy in respect The Board pays due regard to safety legislation, regulations or of financial instruments is set out environmental, health and safety similar codes of practice are in the notes to the financial and employment responsibilities complied with. statements, together with and devotes appropriate resources The Group is also committed to information on price, credit to monitoring compliance with achieving equal opportunities and and liquidity risks. and improving standards. The Chief complying with anti-discrimination Executive Officer has responsibility The only expenditure incurred legislation and employees are for these areas at Board level, in the area of research and encouraged to train and develop ensuring that the Group’s policies development relates to software their careers. Group policy is to are upheld and providing the and system development, which offer the opportunity to benefit necessary resources. Further is shown in the notes to the from fair employment, without information on diversity, human financial statements. regard to gender, sexual rights and environmental matters, orientation, marital status, race, including carbon dioxide emissions Substantial Shareholdings religion or belief, age or disability data, is contained in the CSR As at the date of this report, and full and fair consideration is Report, whilst information on the Group has been notified, in given to the employment of employee share plans and share accordance with the Companies disabled persons for all suitable jobs. Act, of the significant interests in the ownership is contained in the ordinary share capital of the Directors’ Remuneration Report In the event of any employee Company, shown below. Any and the notes to the financial becoming disabled, every effort is interests of Directors which amount statements. made to ensure that employment to over 3% of the Company’s share continues within the existing or a capital are shown in the Directors’ Health, Safety and Equal similar role and it is the Group’s interests table within the Directors’ Opportunities policy to support disabled Remuneration Report. The Group is committed to employees in all aspects of their providing for the health, safety and training, development and welfare of all current and potential promotion where it benefits both the employee and the Group.
Number Percentage Name of shareholder of shares shareholding Employee Involvement Franklin Templeton Institutional, LLC 14,134,650 10.95% The Group systematically provides employees with information on William Frederick Bottriell 7,238,245 5.98% matters of concern to them, Legal & General Investment consulting where appropriate by 7,030,279 5.48% Management Limited surveys or other means, so that views can be taken into account J O Hambro Capital Management Limited 6,280,338 5.21% when making decisions likely to HBOS plc 6,983,314 5.21% affect their interests. Employee involvement is encouraged, as is Harris Associates L.P. 6,575,593 5.17% achieving a common awareness, AXA 6,291,253 5.12% on the part of all employees of the financial, economic or other JP Morgan Chase 7,021,061 5.07% factors affecting the Group. This Allianz Global Investors GmbH 6,472,361 5.00% plays a major role in ensuring shared success. The Group BlackRock, Inc. 6,137,031 4.99% encourages this involvement FMR LLC 6,266,905 4.99% predominantly by communicating via the Group’s intranet articles FIL Limited (Fidelity) 6,028,475 4.95% or email updates, training and F & C Management 6,104,400 4.82% by participation in the Group’s employee share plans to Standard Life Investments Limited 5,845,830 4.78% align interests.
DIRECTORS’ REPORT 49 GOVERNANCE
Community human trafficking is not taking indicated their willingness The Group is committed to providing place anywhere in our to continue in office. support to the community and supply chains. society through a number of Due Diligence Processes for Statement of Director’s charitable activities and donations, Slavery and Human Trafficking Responsibilities although no donations for political As part of our controls to identify The Directors are responsible for purposes of any kind were made and mitigate risks, we have in preparing the Annual Report, during the year. place processes and procedures to: including the Directors’ Remuneration Report and • Identify and assess potential risk Annual General Meeting (‘AGM’) the financial statements in areas in our supply chains; The AGM of the Company will be accordance with applicable law • Mitigate risks, including slavery held on 20 April 2017, at 8th Floor, and regulations. Company law and human trafficking occurring City Place, 55 Basinghall Street, requires the Directors to prepare in our supply chains; London EC2V 5DX. A separate financial statements for each notice details all business to be • Continually monitor risk areas financial year. Under that law transacted. in our supply chains; and the Directors have prepared the • Protect whistle blowers, via a Group and Company’s financial Modern Slavery Act 2015: confidential and independent statements in accordance with Slavery and Human Trafficking reporting process. International Financial Reporting Standards (IFRSs) as adopted by Statement This statement is made pursuant the European Union. Under Organisation’s structure to section 54(1) of the Modern Company law the Directors As an international specialist Slavery Act 2015 and constitutes must not approve the financial staffing company, we are our slavery and human trafficking statements unless they are committed to improving our statement for the financial year satisfied that they give a true and practices to combat slavery and ending 2016. fair view of the state of affairs of human trafficking. Management the Consolidated Group and the does not consider there to be a Independent Auditors and Company and of the profit or loss risk of slavery or human trafficking Disclosure of Information of the Consolidated Group for that taking place within its supplier base. to Auditors period. In preparing these The Group’s supply chain makes As required by Section 418(2) of financial statements, the Directors appropriate supplier checks around the Companies Act 2006, each are required to: governance and financial standing, Director in office, at the date of and considers these adequate to • select suitable accounting this report, hereby confirms that: protect against slavery and human policies and then apply them • so far as each Director is aware, trafficking within the Group’s consistently; there is no relevant audit supply chain. • make judgements and information of which the accounting estimates that are Our Supply Chains Company’s auditors are reasonable and prudent; Our supply chains include unaware; and management companies, job • state whether applicable IFRSs as • he/she has taken all steps that boards, media, IT equipment, adopted by the European Union he/she ought to have taken as stationary and print suppliers, have been followed, subject to a Director in order to make him/ whilst our clients include large any material departures herself aware of any relevant international and STEM businesses. disclosed and explained in the audit information and to financial statements; and Our Policies on Slavery and establish that the Company’s • prepare the financial statements Human Trafficking Auditors are aware of such We are committed to ensuring that information. on the going concern basis there is no modern slavery or human unless it is inappropriate to A formal audit tender will be trafficking in our supply chains or presume that the Company completed in early FY 2017, in any part of our business. We are will continue in business. following which a resolution will committed to acting ethically and be put to the forthcoming AGM with integrity in all our business The Directors are responsible for proposing an appointment as relationships and to implementing keeping adequate accounting auditors for the ensuing year. and enforcing effective systems records that are sufficient to show Prior to this process, and controls to ensure slavery and and explain the Company’s PricewaterhouseCoopers LLP had
50 DIRECTORS’ REPORT GOVERNANCE
transactions and disclose with • the Directors’ report, together reasonable accuracy at any time with the Strategic Report, the financial position of the Chairman’s and other officers’ Company and the Group and sections of this Annual Report, enable them to ensure that the include a fair review of the financial statements and the development and performance Directors’ Remuneration Report of the business and the position comply with the Companies Act of the Group and the Company, 2006 and, as regards the Group together with a description financial statements, Article 4 of of the principal risks and the IAS Regulation. They are also uncertainties that are faced. responsible for safeguarding the assets of the Company and the Group and hence for taking BY ORDER OF THE BOARD reasonable steps for the prevention and detection of fraud and other STEVE HORNBUCKLE irregularities. Group Company Secretary
The Directors are responsible for the 20 January 2017 maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the Registered Office: preparation and dissemination of 8th Floor, financial statements may differ City Place, from legislation in other jurisdictions. 55 Basinghall Street, London The Directors consider that the EC2V 5DX Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group and the Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are shown within the Board of Directors & Secretary section of this Annual Report, confirm that, to the best of their knowledge: • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
DIRECTORS’ REPORT 51 GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Review of our relative shareholder returns. Remuneration Policy The fixed elements of the SThree’s current remuneration remuneration packages are set so policy was approved by that they reflect the calibre and shareholders at the 2014 AGM experience of the individuals and and will expire at the 2017 AGM. In the complexity of their roles. The conjunction with my predecessor incentive plan design is tailored to Tony Ward, the current objective metrics that are linked Remuneration Committee has to the business’s core focus and undertaken a comprehensive strategy. SThree is a business that is review of remuneration before heavily dependent on being able DENISE COLLIS presenting a new policy for to engage both the Customer REMUNERATION shareholder approval at the and Employee. Related forthcoming AGM. As a Board, we COMMITTEE CHAIR to this, annual bonus targets are are keenly aware of the sensitivities based on specific areas that of the topic of executive pay for require immediate focus, whereas DEAR SHAREHOLDER, companies, employees and the LTIP looks to drive sustainable shareholders. Our approach improvements at a more macro is to ensure that our pay policy On behalf of the Board level over the longer term. Culturally, reflects the business strategy, with the setting-out of both financial I am pleased to present remuneration payments that are and broader measures serves to the Remuneration fair and are strongly linked to focus scheme participants on a Committee’s annual performance. more holistic view of business report on Directors’ The Committee considers that success, and hence serves to remuneration for the year the existing Executive Director drive performance. ended 30 November 2016. remuneration structure has served The changes proposed to the SThree well. Over the current policy policy for shareholders’ approval period, the annual bonus has are evolutionary and tighten the proved to be effective at driving link further between business team operational performance, strategy and performance on the whilst the long-term incentive plan one hand and the remuneration (the ‘LTIP’) has given executives the of Directors on the other. There opportunity to earn reward in line are no increases to quantum. with the delivery of absolute and
52 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
In summary the proposed subdued Energy and Banking The annual bonus opportunity will changes are: sectors whilst also experiencing remain capped at 120% of base • For base salary (including execution issues in the USA. salary with deferral in shares for recruitment) we are moving Consequently, whilst the Group’s any bonus above 100% of salary. away from explicit reference to consensus targets were met, Performance metrics will remain any benchmark positioning; performance in the USA, APAC & unchanged in terms of the overall ME and the UK were below mix and there will be full • For the annual bonus there will expectations. retrospective disclosure of target be greater flexibility to set sliding ranges and performance in next scales of performance, rather Reflecting this performance, in year’s Directors’ Remuneration than setting a rigid 90%-110% relation to incentive payments for Report. range around target in all cases the year under review, the annual bonus paid was just over 50% of (although there will be no The LTIP will continue to be based maximum for the CEO, CFO and material change in FY 2017); on SThree’s performance over 3 COO, but below 50% of the • For the LTIP the individual grant years and subject to a 2-year maximum for the CEO, USA. limit will be simplified by removing holding period post-vesting. For FY a rolling limit of 450% of salary In relation to payments under the 2017 the grant level will be 150% over three years, leaving just a LTIP, this was based on our of base salary. The performance 175% of salary annual limit in performance over the three years conditions will be changed so that the LTIP rules. The normal grant to FY 2016. The EPS performance rather than 50% based on EPS and limit in the policy would be 150% condition required EPS growth to 50% based on TSR, there will be one of base salary, but this may be be between RPI +6% and RPI +15% third each based on EPS and TSR increased to 175% in exceptional p.a. For FY 2016 our LTIP EPS and the final one third based on a circumstances (in which case performance was 23.0p (after Strategic Scorecard of targets. For we will engage with shareholders adding back £0.4m USA the regional CEOs, the performance and provide a full explanation). restructuring costs) equating to conditions will be equally weighted There will be greater flexibility in RPI +16% over the performance on TSR, EPS, Strategic Scorecard the choice of LTIP performance period and resulting in full vesting and regional profit growth. metrics that may be used and of the award based on adjusted The introduction of the additional for all LTIP metrics the threshold EPS. Under the total shareholder strategic element will provide a vesting level will be reduced from return (‘TSR’) part of the award our keener focus on the delivery of our 30% to 25% of the award to make TSR was required to be between corporate strategy and ensure that the target ranges structurally median and upper quartile the key drivers of long-term success more challenging. Despite there performance against a peer are captured in the LTIP. The being greater flexibility, the group. Our TSR was -18.8% which Committee considers that linking Committee will seek to adopt placed us 26th out of 34 in the vesting of LTIP awards to a a broadly consistent approach comparator group, resulting in zero combination of three measures, though the policy period; payout of the award based on TSR. capturing share price, financial • The shareholding requirement Whilst this share price performance results and non-financial threshold for Executive Directors was disappointing, the Committee performance will help ensure the has been increased from 100% to was comfortable that overall the LTIP is more robust to volatile 200% of salary, to be achieved by annual bonus and LTIP payments outcomes in any one measure, retaining at least half of any represent a robust link between driving sustainable performance, vesting LTIP or deferred bonus reward and performance. while maintaining the alignment until this requirement is met. This of executive and shareholder higher threshold will improve Full details of the metrics and the interests. Minor changes are further the alignment of interest performance against them, is set proposed for the calculation of between Directors and out in the report. the EPS and TSR performance shareholders. conditions, detailed later in this Policy Implementation for FY 2017 The Committee has awarded all report. Remuneration Payable for Executive Directors salary increases Performance in FY 2016 Shareholder Engagement Whilst the Group delivered to of 2.5%, which is broadly in line with The changes proposed to the market expectations, it continued the average increase for remuneration policy noted above to be impacted by the more employees generally. were the subject of extensive
DIRECTORS’ REMUNERATION REPORT 53 GOVERNANCE
shareholder engagement during The Committee is committed to DENISE COLLIS the year under review. The Board maintaining an on-going dialogue Chair of the Remuneration values the opinions of its with Shareholders on the issue of Committee Shareholders and other executive remuneration and we stakeholders and has proactively welcome any further feedback 20 January 2017 taken their views into account you may have. when finalising the proposed We look forward to your support remuneration policy and its on the resolutions relating to application for FY 2017. This has remuneration at the AGM in included making changes to April 2017. some earlier proposals.
Policy Report The Group’s remuneration policy and the UK Corporate The remuneration policy is set out below will be proposed for Governance Code (the ‘Code’). designed to support the strategic shareholder approval at the Regulations require the auditors to business objectives of the Group in Annual General Meeting to be report to the Company’s order to attract, retain and held on 20 April 2017. The policy shareholders on the ‘Directors’ motivate Directors and senior would take effect immediately Remuneration Report’ and to state managers of a high calibre to following shareholder approval. whether in their opinion this part deliver sustainable increases in of the report has been properly long term shareholder value. The report complies with the prepared in accordance with Companies Act 2006 and the the Companies Act 2006 requirements of the Listing Rules (as amended).
Summary of Changes to Remuneration Policy The proposed changes to the a rigid 90%-110% range around level will be reduced from 30% to existing policy are: target in all cases; 25% of the award to make the performance condition • For base salary (including • For the LTIP the individual grant structurally more challenging; recruitment) we are moving limit will be simplified by removing away from explicit reference to a rolling limit of 450% of salary • The shareholding requirement any benchmark positioning. over three years, leaving just a threshold for Executive Directors Any increases to base salary will 175% of salary annual limit in the has been increased from 100% to normally be limited to the LTIP rules. The normal grant limit 200% of salary, to be achieved by average increase for employees in the policy would be 150% of retaining half of any vested LTIP more generally, other than in base salary, but it may be 175% deferred bonus or other awards, exceptional circumstances; in exceptional circumstances (in until the requirement is met, which case we will engage with rather than achievement within • For the annual bonus there will shareholders and provide a full a specific five year timeframe. be greater flexibility to set explanation). There will be This higher threshold will improve appropriately stretching and greater flexibility in the range of further the alignment of interest balanced sliding scales of LTIP performance metrics that between Directors and performance for any metric, may be used and for all LTIP shareholders. rather than the policy specifying metrics the threshold vesting
54 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
Current and Future Policy Table
Element Purpose & Link to Strategy Operation Maximum Performance Metrics EXECUTIVE DIRECTORS Base Salary Sufficient to attract, Reviewed annually Increases will normally Not applicable retain and motivate high with any increases taking be the equivalent to calibre individuals. effect from 1 December. the average salary increase for employees, other than in exceptional circumstances.
Benefits Market competitive Including Car Allowance, Cost of insured benefits Not applicable benefits package. Private Medical Insurance, will vary in line with Permanent Health premiums. Other Insurance, Life Assurance benefits will be at a and Housing Allowance (if level considered relocated). appropriate in the Other benefits may be circumstances. introduced to ensure benefits overall are competitive and appropriate for the circumstances.
Pension To provide a Individuals may either 15% of base salary. Not applicable competitive pension participate in a pension provision. plan into which the Company contributes or receive a salary supplement in lieu of pension.
Annual Bonus Incentivises high levels Deferral into shares for Maximum bonus Achievement of agreed of personal and team achievement over 100% payment is 120% of strategic and financial/ performance, focused of salary, vesting in equal annual salary. operational annual business on the key business tranches over two years, targets, weighted in line with strategies and subject to continued business priorities. A majority financial/operational employment. of the performance measures which will Dividend equivalent conditions will be based on promote the long term payments accrue on financial metrics. Sliding success of the business. deferred shares, payable in scales are used for each cash or shares. metric wherever practicable with 20% payable for Bonus may be subject to achieving threshold clawback or malus being performance. Normally 50% applied, if appropriate, in of the maximum bonus is the event of financial payable for target misstatement, error or performance for any financial misconduct, which has metric. Within the maximum led to an over-payment. limit, the Committee may adjust bonus 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.
DIRECTORS’ REMUNERATION REPORT 55 GOVERNANCE
Element Purpose & Link to Strategy Operation Maximum Performance Metrics Long Term Incentivises and LTIP awards may be The maximum Targets are reviewed Incentive rewards Executives granted each year in award is 150% of annually ahead of each Plan for the delivery of the form of a salary p.a. in normal grant to ensure they are longer term strategic conditional award circumstances but aligned to the business objectives and to of shares or a nil cost may be 175% of strategy and performance reward substantial option. LTIP awards salary in exceptional outlook. A majority of the relative and absolute normally vest after three circumstances. performance conditions increases in years. Dividend are based on Group shareholder value. equivalent payments financial performance accrue on vested LTIP and shareholder value- awards, payable in based outcomes. No cash or shares. Vested more than 25% of an LTIP awards must be award may vest for the held for a further two threshold level of years before the shares performance. Within the may be sold (other maximum limit, the than to pay tax). LTIP Committee may adjust awards may be subject vesting outcomes, if it to clawback or malus considers the quantum to being applied, if be inconsistent with the appropriate, in the Company’s overall event of financial performance during the misstatement, error or year. Regional based misconduct, which has financial metrics may be led to an over-payment. used for Directors for a minority of the award, where appropriate.
All Employee Support and HMRC approved SAYE In line with HMRC Not applicable Share Plans encourage share and SIP participation limits or lower limits ownership by is available to all UK specified by the employees at employees, including Company from all levels. Executive Directors, on time to time. similar terms.
Share Alignment of Executive Directors are Not applicable Not applicable Ownership Executive Directors’ expected to build and Requirements interests with those maintain a of investors. 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 new policy, any payments due under the terms of the previous policy are capable of being made.
56 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
Operation of Incentive Plans The Committee’s policy is to review for rounded performance, while plans, for instance (but not limited performance measures for the maintaining the alignment of to) adjustments required for incentive schemes annually, so that Executive and shareholder corporate restructuring and they continually align with strategic interests. change of control. objectives. The Committee The Committee may exercise In designing incentive structures considers that linking annual bonus discretion in assessing and approving incentive and the vesting of LTIP awards to a achievement against each stated payments, the Committee pays combination of different measures, target where it considers that it due consideration to risk capturing share price, financial would be fair and reasonable to management and environmental, results and non-financial do so. The Committee may also social and governance performance will ensure that exercise broader discretion in (‘ESG’) issues. incentive plans provide a reward relation to the terms of all incentive
Illustration of Potential FY 2017 Executive Directors’ Remuneration The charts below show the remuneration potentially payable to Executive Directors under different performance scenarios.
Note: Assumptions for the charts above: Fixed pay comprises base salary as at 1 December 2016, pension contribution of 15% of salary and the value of benefits received in FY 2016. Housing allowance was excluded from last year’s graph. The on-target level of bonus is 50% of the maximum opportunity. The on-target level of the LTIP is taken to be 50% of the value of a single year’s award. The maximum level of bonus and LTIP is the maximum bonus and 100% of the face value of the LTIP at grant. No share price appreciation has been assumed for deferred bonus or LTIP awards and the value of all-employee share plans has been excluded.
Differences in Remuneration Policy for Executive Directors Compared to Other Employees The Committee is made aware Executive Directors, in particular in Overall the remuneration policy for of pay structures across the wider relation to any base salary review. Executive Directors is weighted group when setting policy for more to performance based pay
DIRECTORS’ REMUNERATION REPORT 57 GOVERNANCE
and, in particular, long term pay levels are justifiable internally created for shareholders and share-based incentives. This is to and externally to shareholders as a the remuneration received by ensure that the relatively higher clear link between the value Executives.
Consideration of Employment Conditions Elsewhere in the Group The Company, in line with market would make any comprehensive generally. The Committee is aware practice, does not actively consult cost-effective consultation process that market practice may develop with employees on executive impractical. However, when setting in this regard following the remuneration. The Group has a the Executive Directors’ Government’s review of diverse employee base operating remuneration policy the Committee Corporate Governance and will in several different countries, with takes into account the pay and monitor developments carefully. various local practices, which conditions of employees more
Consideration of Shareholders’ Views in Determining the Remuneration Policy The Committee actively consults annually. Feedback is taken on the objectives of ensuring that with shareholders on executive board and any proposals are shareholders are supportive of the remuneration and has done so adjusted, as appropriate, given policy and its implementation.
Remuneration Policy for Recruitment and Promotion Base salary levels will be set in line payments to cover relocation For external recruits there may with the policy taking account of related expenses. be a need to buy out unvested individual circumstances. Where incentive entitlements at a Annual bonus would be in line with it is appropriate to offer a starting previous employer. The Committee the policy and there would be salary below the desired position confirms that any such buy out flexibility to set different performance initially, there is flexibility to make arrangements would only be used conditions measurable over a increases at a faster rate than if necessary, would take a similar part-year, in the first year of other Directors and employees, form to that surrendered (e.g. cash appointment. subject to individual performance or shares and timeframe), take and development in the role. For internal promotions, account of performance outstanding incentive payments conditions and quantum would Benefits and pension would be in may vest on their original terms. be no greater than that which the line with the policy. Additionally, individual has forfeited on there would be flexibility to make appointment.
Policy on Directors’ Service Contracts and Payments for Loss of Office The Executive Directors have rolling offset against future earnings. For payments associated with service contracts subject to a new hires the policy is to provide loss of office. maximum of 12 months’ notice by a 12 month notice period. ‘Good’ leavers (e.g. redundancy the Company or Executive. At the Depending on the circumstances or retirement) may generally retain Company’s discretion, on the Committee may consider any earned bonus or share based termination a payment may be payments in respect of statutory awards, on a pro rata basis, subject made in lieu of notice equivalent entitlements, outplacement to still achieving any relevant to 12 months’ salary, which may be support and legal fees. Mitigation performance criteria. paid in monthly installments and would be applied to reduce any
58 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
‘Bad’ leavers such as a resignation participate in the bonus scheme LTIP awards would normally lapse would lose any entitlement to and outstanding deferred bonus or on cessation of employment.
External Appointments Executive Directors are existing role. This helps to broaden appointments are held by any encouraged to undertake external experience and capability, which Executive Directors. appointments, where they are can benefit the Company. able to combine this with their Currently, no external
Terms of Appointment and Remuneration Policy for Non Executive Directors (‘NEDs’) NEDs are appointed for an initial In practice NEDs may be requested entitled to compensation and no three-year term, subject to to serve up to nine years, subject to fee is payable in respect of the satisfactory performance and rigorous review. unexpired portion of the term of re-election at each AGM, with an appointment. The appointment may be expectation that they would serve terminated by either the Company The policy for the remuneration for at least six years, to provide a or the NED at will. Upon termination of NEDs is summarised below: mix of independence, balance or resignation, NEDs are not and continuity of experience.
Purpose & Link Element Operation Maximum Performance Metrics to Strategy Fees Attracts, retains Fees are determined by the Board There is no maximum Obligation to perform and motivates as a whole and set by reference to individual fee limit. satisfactorily and high calibre NEDs those fees paid in similar The overall fee comprises attend and to provide companies, related to allocated a basic fee plus payment contribute at experience, responsibilities and subject to the for additional meetings, assessed capability and aggregate directors’ fee limits responsibilities such as via Board governance in contained in the Company’s chairing Committees and effectiveness reviews. the interest of Articles of Association. for interim additional shareholders. Out of pocket expenses including duties. NEDs do not travel may be reimbursed by the participate in the Group’s Company in accordance with incentive schemes. 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 purchased shares. The Company shares is constrained by dilution awards may include new issue has established an EBT to facilitate limits which comply with investor shares, treasury or employee settling vested share awards. The guidelines. benefit trust ‘EBT’ shares or market use of new issue shares or treasury
DIRECTORS’ REMUNERATION REPORT 59 GOVERNANCE
Annual Report on Remuneration HOW THE POLICY WILL BE APPLIED IN FY 2017
Base Salary Base Salary Increase Base Salary The table (right) illustrates the FY 2016 (from 1 Dec FY 2017 most recent base salary changes EXECUTIVE DIRECTOR £’000 2016) £’000 (effective for FY 2017). The Gary Elden, CEO 431.0 442.0 average pay award for employees generally was 2.5%. All salaries are Alex Smith, CFO 325.0 333.2 2.5% paid in local currency and have Steve Quinn, CEO USA 323.7* 331.8* been reported in sterling at recent exchange rates, for the CEO USA Justin Hughes, COO 323.7* 331.8* and COO. * Payable in local currency of US $ or HK $ hence actual sterling amounts can differ YoY.
Benefits and Pension There are no changes to benefits. The pension contribution equates to 15% of salary.
Annual Bonus FY 2017 annual bonuses will be The bonus metrics and weightings sensitive and will be disclosed capped at 120% of base salary. for the FY 2017 annual bonus are retrospectively in next year’s Any bonus above 100% of salary is summarised in the table below. Directors’ Remuneration Report. deferred into shares vesting in equal The target ranges for each metric tranches over the next two years. are considered to be commercially
METRIC WEIGHTING METRIC SUB-WEIGHTING NOTES Financial 65% Adjusted Profit Before Tax 29.25% Sliding scales set for each metric around a OP Conversion Ratio 19.5% target level with full disclosure in next year’s report Cash Conversion Ratio 16.25% Improvement in Candidate Net Promoter Score Customer & People Strategic 25% 6.25% (NPS) and staff retention of the 12-24 months’ engagement sales cohort End to end customer Targeted improvements in middle office and 6.25% experience support functions Pilots in more established geographies to Permanent strategy 6.25% deliver a separately structured Permanent business from Contract Developing the most effective organisational Customer & Delivery 6.25% design for Contingency, MSP and Key organisation Account Customers Including metrics on M&A, innovation, Delivery versus agreed objectives to produce Personal 10% business model and 10% value or efficiency gains succession, amongst others. Total 100% 100%
Long Term Incentive Plan The FY 2017 -19 LTIP awards will be Performance conditions will be overleaf. For the COO and CEO, made at 150% of salary. Awards based on EPS, TSR and Strategic USA there will be a regional OP will vest on the third anniversary Metrics for the CEO and CFO, each metric, in addition, applied equally. of grant, with a further two year applied independently in equal There will be a straight-line sliding holding period on vested shares. measure to awards, as set out scale between points:
60 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
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 Vesting of the award subject to TSR Measured over the three financial compared to the Comparator group years to 30 November 2019. Below median 0% Note: The comparator group for FY 2017 LTIP Median 25% awards will be: Adecco, Amadeus Fire, Brunel, Empresaria, Groupe Crit, Harvey Nash, Hays, Upper quartile rank or above 100% Impellam, Interquest, Kelly Services, Kforce, Korn Ferry, ManPower, Matchtech, Page Between median and upper quartile Pro rata between 25% and 100% Group, On Assignment, Randstad, Robert Half, Robert Walters and Staffline
Regional Targets: will continue OP Target Range Payout Range Region to apply to Directors with regional FY 2019 (% of regional award) responsibility, as follows: USA 36% - 46% CAGR 25% - 100% (pro rata) £1.7m - £3.7m APAC & ME 25% - 100% (pro rata) OP improvement
Strategic Metrics: Applying to one third of the award, Employee (one third): Relative gross profit (one third): and broken down as follows. • The Employee metric will be split • The relative gross profit will be Where sliding scales operate there equally so that for one third, Staff compared to the same group as will be 25% vesting at the threshold Engagement growth must be used for the TSR metric with the for payment: 3%-5% CAGR over three years. same medium-to-upper quartile For one third Sales Churn must sliding scale. Gross profit will be Customer (one third): be 37%-35% by 2019 (compared compared based on percentage • Revenue generation of between to 38% in 2016). For the final one gross profit growth over three- £10m-£15m from new product third Sales level 3-4 Diversity & year performance period with lines by FY 2019. Inclusion gender representation adjustments made as necessary • Broad NPS metric showing targets must improve over the to ensure like-for-like comparison improvement of 3%-5% p.a. CAGR same period. Level 3 across the companies. Adding a in years 2-3 from a baseline representation to increase from relative gross profit measure will derived from the 1st year actual 10% to 15% - 20% and Level 4 provide a good balance to the NPS. This differs from the annual representation to increase non-financial Strategic metrics, bonus NPS metric which is based from 26% to 30% - 32%. by focusing on growing our gross on specific areas of the business profit at a faster rate than our
that require focus. competitors.
Shareholding Requirement The minimum shareholding and with effect from the FY 2017 against this threshold, no less than requirement has been increased annual bonus and LTIP awards, to 50% of any deferred bonus or vested from 100% to 200% of base salary the extent that there is any shortfall LTIP award must be retained.
DIRECTORS’ REMUNERATION REPORT 61 GOVERNANCE
Non Executive Directors (‘NEDS’) For FY 2017 there have been no changes to NED fees, which are as follows for the current and prior year:
Non Executive Date Base Fee FY 2016 Chair Fee FY 2016 Base Fee FY 2015 Chair Fee FY 2015 Committee Director Appointed £’000 £’000 £’000 £’000 Chair Clay Brendish 01/05/2010 140.0 - 125.0 - Nomination
Anne Fahy 01/10/2015 40.0 6.0 40.0 6.0 Audit
Fiona MacLeod 01/07/2014 40.0 - 40.0 - N/A
Nadhim Zahawi 01/05/2008 40.0 - 40.0 - N/A
Denise Collis 01/07/2016 40.0 6.0 - - Remuneration
Directors’ Remuneration for the Year Under Review and Basis for Payments Under Incentive Plans (Audited)
The following tables show Directors’ emoluments for the current and prior year (see notes overleaf).
FY 2016
Salary & Benefits Annual Bonus Long Term Incentive Plan Pension Total Director Fees £’000 (i) £’000 £’000 (ii) £’000 (iv) £’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) ** 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 current or previous year ** Payable in local currency of US$ or HK$ hence actual sterling amounts can differ YoY
FY 2015
Long Term Salary & Benefits Annual Bonus Incentive Plan Pension Total Director Fees £’000 (i) £’000 £’000 (iii) £’000 (iv) £’000 £’000 Gary Elden 411.7 11.1 458.3 325.0 78.8 1,284.9
Alex Smith 316.7 11.1 352.6 250.0 47.5 977.9
Steve Quinn (V) 266.0 341.5 287.5 210.0 50.5 1,155.5
Justin Hughes (V) 266.0 93.9 263.9 210.0 47.2 881.0
Clay Brendish 125.0 - - - - 125.0
Anne Fahy* 7.5 - - - - 7.5
Fiona MacLeod 40.0 - - - - 40.0
Nadhim Zahawi 40.0 - - - - 40.0
Tony Ward 46.0 - - - - 46.0
Alicja Lesniak* (left 23/04/15) 19.2 - - - - 19.2
Aggregate Emoluments 1,538.1 457.6 1,362.3 995.0 224.0 4,577.0
*Pro rated due to appointment or retirement in current or previous year. 62 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
NOTES the share price as at 30 November 2016, Steve Quinn’s FY 2016 figures include the (I) Benefits include car allowance, medical cover the last dealing day of the year. amounts to rectify underpayment of this and life/income protection insurance, as well as (III) FY 2015 LTIP awards relate to those granted in supplement to him in the prior year. Gary Elden, payments to cover housing or other costs under early FY 2013, vested in early FY 2016, based on Justin Hughes and Steve Quinn’s FY 2015 figures the Group’s relocation scheme, being performance assessed over FY 2013 – 2015, also include amounts to rectify underpayments of £268,315 (2015: £321,116) for Steve Quinn and including the value of any related dividends this supplement in the prior year. £99,774 (2015: £82,908) for Justin Hughes. accrued during the vesting period on vested (V) Justin Hughes (based in Hong Kong) and Steve (II) FY 2016 LTIP awards relate to those granted in awards. The benefit value has been calculated Quinn (based in the USA), are paid in local early FY 2014 and vesting in early FY 2017, using a share price of 327.3p, being the share currency. Their salaries have been converted based on performance assessed over FY 2014 price as at 30 November 2015, the last dealing into pounds sterling at average exchange – 2016, also including the value of any related day of the year. rates for FY 2016 of 10.77 (Hong Kong Dollar dividends accrued during the vesting period (IV) Senior employees, including the Executive and 1.39 (US Dollar). on vested awards. The benefit value has been Directors, are eligible for a salary supplement in (VI) There were no payments to former directors calculated using a share price of 276.5p, being lieu of pension of up to 15% of their base salary. for loss of office.
How Annual Bonus and LTIP Payments Made During the Year Were Linked to Performance
Annual Bonus Payable for FY 2016 Performance (maximum 120% of salary) The table below shows the awards as a percentage of the maximum bonus opportunity (100%), against the measures/ weighting and result for FY 2016.
CEO CFO CEO CEO USA COO Performance CEO Max Actual CFO Max Actual USA Max Actual COO Actual Measure Potential Result Potential Result Potential Result Potential Result FY 2016 (% max) (% max) (% max) (% max) (% max) (% max) (% max) (% maxi)
Group Financial Objectives (1)
PBT 29.3 7.4 29.3 7.4 23.4 5.9 23.4 5.9
OP Conversion Ratio 19.5 3.9 19.5 3.9 15.6 3.1 15.6 3.1
Cash Conversion 16.2 16.2 16.2 16.2 13.0 13.0 13.0 13.0 Ratio Group Financial 65.0 27.5 65.0 27.5 52.0 22.0 52.0 22.0 Total
Regional Financial - - - - 13.0 - 13.0 -
Financial Total 65.0 27.5 65.0 27.5 65.0 22.0 65.0 22.0
Shared Objectives (2)
Diversity & Inclusion 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2
Innovation 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2
Customer Experience 4.2 3.7 4.2 3.7 4.2 3.7 4.2 3.7
Order Management 4.2 4.0 4.2 4.0 4.2 4.0 4.2 4.0
Organisational Design 4.2 3.8 4.2 3.8 4.2 3.8 4.2 3.8
Churn 4.0 - 4.0 - 4.0 - 4.0 -
Shared Objectives 25.0 19.9 25.0 19.9 25.0 19.9 25.0 19.9 Total
Personal (3) 10.0 9.0 10.0 9.0 10.0 6.5 10.0 9.7
Actual Bonus 100.0 56.4 100.0 56.4 100.0 48.4 100.0 51.6 Achievement (% max)
Effective Achievement 120.0 67.7 120.0 67.7 120.0 58.1 120.0 61.9 (% salary)
DIRECTORS’ REMUNERATION REPORT 63 GOVERNANCE
NOTES TO THE BONUS TABLE: 1. Targets are normally measured on an £40.4m versus a target of £44.0m (target Following this adjustment actual regional adjusted basis, as reported. However, in range £39.6m - £48.4m). The OP Conversion contribution achievement was £11.3m assessing the FY 2016 bonus, the Committee Ratio was 15.8% versus target of 17.6% (target range £16.2m - £18.0m) for the CEO, applied a downwards discretionary (target range 15.8% - 19.4%). Cash USA and £6.7m (target range £9.4m - adjustment £0.4m of US costs, due to Conversion was 96% (target range 69% - £10.4m) for the COO. execution issues in the USA. This lowered the 85%). Regional financial targets were based bonus payout for all Executive Directors. on delivery against agreed growth Actual PBT performance was therefore measures, none of which were met.
2. Shared objectives are assessed based on (‘GMB’) members of agreed medium as follows: delivery by the Group Management Board term strategic targets,which are outlined
Result (as % of maximum Metric / target range Result opportunity) Diversity & inclusion Target The target required development plans for females @ level 2 and 3 96.7% of females with quality PDP’s exceeded with 95% of females to have Personal Development Plans (threshold 90%). – 100% A robust and comprehensive plan to identify High Potential Females by Development of Female Leadership Programme, supported region and function by comprehensive programme of local development activity. 30% year on year improvement in Level 3 female population Innovation (as distinct from continuous improvement) Fully Business plan for video interviewing by end of H1 Successful trials completed Achieved – 100% Use a service blueprint design approach to innovate on Roll-out programme completed as per plan methodology for Order Management Identify innovation roadmap and first run of innovation activities by H1 Innovation architecture developed, endorsed by the Board. Localised activity initiated around building and embedding an innovation mindset Global programme for measuring customer service Good Customer NPS in place for DACH and US by end of January and all Phase 1 Net Promoter Score (‘NPS’) successfully introduced progress brands by March across all brands and countries – 88% Journey based NPS programme for key stages of candidate Global NPS score of 37, substantially exceeding target of 24. experience and improve NPS score from 14 to 24 Supporting L&D programme developed and launched Order management - redesign of end-to-end processes to improve efficiency Good Define vision and form Steering Group by January Achieved progress – 95% Scope major project streams by April followed by others to be defined Process efficiency design completed. Successful introduction of a number of key initiatives including online time sheets. Terms & Pricing business case and 14 sub projects defined and ready for next phase development Organisational design review Good Profitability of the current split desk approach between US and Glasgow to Board endorsement of proposal on future model progress be reviewed – 90% Potential different OD models to be identified by H1 OD elements delivered to Plan. Phase 2 piloting commenced Churn - improve retention of Consultant level staff (Under- Target of 37.5% - 35% Disappointing performance, 39% for consultants generally performed and 52% for 12-24 month cohort - zero%) Consultant 12-24 month churn to be 3-4 points lower (50%-47%)
3. Personal targets - delivery against agreed objectives as follows:
Result (as % of Metric / target range Result maximum opportunity) CEO Identification of M&A opportunities In-house capability developed. Pipeline of opportunities developed and assessed. Strong progress and creation of M&A team Viable options suitably explored and appropriate no-go decisions taken – 90% A specific M&A proposal mapped out Robust platform established for review of future opportunities
CFO Staff engagement Strong progress on staff engagement Strong progress M&A Excellent partnering with CEO on M&A opportunities – 90% Finance strategy Refined service proposition developed and implemented, achieving headcount and cost targets COO Full regional infrastructure in place Stability delivered in region through robust ‘People Plan’ Fully Achieved for both Support Services and sales – 97% including succession Delivery model (split desk) defined Delivery model developed and split desk implemented in Australia. and implemented for Australia Supporting reward schemes linked to Accounting GP. Delivered improvements to regional performance and profitability Strong compliance in Energy Sector Further step change to compliance in the Energy sector CEO, M&A Capability Developed strength of US M&A capability Partial Achievement USA USA Compliance to be strengthened Further strengthened compliance, including ‘Corp to Corp’ model – 65% Execution issues in the US detracted from otherwise strong performance
64 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
LTIP Awards Vested by Reference to Performance over the three years to FY 2016 (Audited) For the CEO and CFO awards were For the COO and the CEO, USA, regional element, split equally. split equally between EPS and TSR. the awards also included a
EPS - Compound annual growth over three years ending FY 2016* Payout Range Vesting Actual performance Vesting level RPI 6% - 15% pa 30% - 100% 100% RPI +16% 100%
* For the purpose of determining the level of EPS growth the FY 2012 EPS (14.1p) was used as the base point for measurement as the FY 2013 EPS was considered unusually low.
TSR - Rank of the Company compared to the peer group Payout Range Vesting Actual performance Vesting level TSR performance the median to upper quartile 30% - 100% 0% 26th out of 34 nil
The LTIP regional element was based on achieving regional OP as follows.
Payout Range Vesting Region OP Target Range (% award of regional) Actual Performance level
USA 12% - 19% CAGR 30% - 100% 7% CAGR nil
APAC & ME £3.5m - £4.5m OP improvement 30% - 100% £2.9m OP improvement nil
The LTIP awards will therefore vest as follows.
Number of Number of Number of Dividend equivalent Total Executive Director shares granted shares vested shares lapsed on additional shares £’000* Gary Elden 165,535 82,767 82,768 10,604 258.2
Alex Smith 127,335 63,667 63,668 8,157 198.6
Steve Quinn 106,961 35,654 71,307 4,568 111.2
Justin Hughes 106,961 35,654 71,307 4,568 111.2
* Based on a share price of 276.5p on 30 November 2016
LTIP Awards Granted in FY 2016 (Audited) LTIP awards were granted on three years subject to performance awards will be subject to a 27 January 2016 and will vest after and service requirements. These two-year post vesting period.
Basis of Face value at % of award vesting at Performance Executive Director Award Number grant £’000* threshold performance period Gary Elden 217,677 646
Alex Smith 150% of 164,141 487 FY 2016 - 30% Steve Quinn base salary 140,404 417 FY 2018
Justin Hughes 140,404 417
*The face value of each award equals the number of shares originally awarded multiplied by the market price at grant date of 297p.
Some 50% (CEO, USA/COO one Compound annual growth Vesting (% subject to EPS performance third) of the FY 2016 LTIP award is over three years ending FY 2018 condition pro rata settings between each) subject to EPS growth targets set Less than RPI+6% 0% out as follows: RPI+6% 30%
RPI+13% 80%
RPI+19% 100%
DIRECTORS’ REMUNERATION REPORT 65 GOVERNANCE
Some 50% (regional CEO/COO Rank of the Company’s TSR compared Vesting (% subject to TSR one third) of the FY 2016 LTIP award to the peer group over three years performance condition pro rata is subject to the Company’s TSR ending FY18 between each) compared to a comparator group TSR performance below the median 0% as follows: 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).
For FY 2016 and FY 2015, the LTIP Payout Range regional element was based on OP Target Range OP Target Range (% of regional growing regional OP as follows: Region FY 2016 awards FY 2015 awards award) USA 12% - 17% CAGR 23% - 36% CAGR 30% - 100% £2m - £3m £4.3m - £6.2m OP APAC & ME 30% - 100% OP improvement improvement
Deferred Bonus Awards Granted Face Value at Grant* in FY 2016 (Audited) Number of Shares £ In line with the policy, the following Gary Elden 15,770 46,522 deferred share awards were granted in respect of the portion of Alex Smith 12,131 35,786 the FY 2015 bonus earned in excess Steve Quinn 8,379 24,718 of 100% of base salary. Deferred share awards vest 50% after one Justin Hughes - - year and 50% after two years. * Based on share price as at 22 February 2016 of 295.0p
Save As You Earn (‘SAYE’) Options Granted in the Year (Audited)
A new SAYE grant was launched the date of grant, for a period discount to the market price in September 2016. Executive of six months, at the relevant and not subject to performance Directors’ options are set out in the option price. conditions. table below, with each award Options are issued on similar terms All previous SAYE grants have lapsed. being exercisable three years from to all employees, being at a 20%
Option Price Shares Value of Shares Vesting Director Date of Grant at Grant Awarded at Grant* Date Gary Elden 20/09/2016 196.40p 9,164 £23,116 1/12/2019
Alex Smith 20/09/2016 196.40p 9,164 £23,116 1/12/2019
* Valued at a share price of 252.25p
66 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
LTIP Awards Outstanding (Audited)
Executive Directors’ awards are structured as conditional payable on vesting for each outstanding under the LTIP are set awards of shares (with no exercise total award). out in the table below. All awards price, save for a notional £1 sum
Remaining Market Unexercised Date of LTIP Price at Shares Face Gain on at 30 Nov 2016 Grant / Grant / Originally Value* Shares Vesting Exercise (Incl Dividend Director Award Award Awarded £ Vested Date £ Shares) Gary Elden 01/02/2011 371.30p 107,217 398,096 32,299 01/02/2014 97,882 -
Gary Elden 01/02/2012 272.00p 157,191 427,559 34,516 01/02/2015 100,250 -
Gary Elden 08/02/2013 331.50p 176,470 584,998 88,235 08/02/2016 286,711 -
Gary Elden 04/02/2014 364.00p 165,535 602,547 - 04/02/2017 - 165,535
Gary Elden 17/02/2015 324.00p 190,621 617,612 - 17/02/2018 - 190,621
Gary Elden 27/01/2016 297.00p 217,677 646,500 - 27/01/2019 - 217,677
Alex Smith 11/02/2010 299.40p 117,935 353,097 120,832 10/02/2013 - 139,918
Alex Smith 01/02/2011 371.30p 104,511 388,049 31,483 01/02/2014 - 34,951
Alex Smith 08/02/2013 331.50p 135,746 449,997 78,985 08/02/2016 234,727 -
Alex Smith 04/02/2014 364.00p 127,335 463,499 - 04/02/2017 - 127,335
Alex Smith 17/02/2015 324.00p 146,631 475,084 - 17/02/2018 - 146,631
Alex Smith 27/01/2016 297.00p 164,141 487,498 - 27/01/2019 - 164,141
Steve Quinn 01/02/2011 371.30p 45,005 167,103 13,557 01/02/2014 - 15,051
Steve Quinn 01/02/2012 272.00p 52,516 142,843 11,531 01/02/2015 - 12,313
Steve Quinn 18/07/2012 261.00p 68,966 180,001 15,142 18/07/2015 - 16,169
Steve Quinn 08/02/2013 331.50p 114,027 377,999 66,347 08/02/2016 197,209 -
Steve Quinn 04/02/2014 364.00p 106,916 389,338 - 04/02/2017 - 106,961
Steve Quinn 17/02/2015 324.00p 123,170 399,070 - 17/02/2018 - 123,170
Steve Quinn 27/01/2016 297.00p 140,404 416,999 - 27/01/2019 - 140,404
Justin Hughes 01/02/2011 371.30p 45,005 167,103 13,557 01/02/2014 - 15,051
Justin Hughes 08/02/2013 331.50p 114,027 377,999 66,347 08/02/2016 - 68,110
Justin Hughes 04/02/2014 364.00p 106,961 389,338 - 04/02/2017 - 106,961
Justin Hughes 17/02/2015 324.00p 123,170 399,070 - 17/02/2018 - 123,170
Justin Hughes 27/01/2016 297.00p 140,404 416,999 - 27/01/2019 - 140,404
* The face value of each award equals the number of shares originally awarded, multiplied by the market price at grant.
DIRECTORS’ REMUNERATION REPORT 67 GOVERNANCE
For the LTIP awards granted on Company’s TSR Ranking Company’s EPS Growth 8 February 2013 (FY13 - 15) and Percentage of Against Comparator Group Over Performance 4 February 2014 (FY14 - 16), the EPS Award that Vests Over Performance Period Period and TSR performance conditions None Below median Below RPI plus 6% pa were as per the table: 30% Median RPI plus 6% pa For both awards the TSR comparator RPI plus 13% pa or group consisted of circa 40 UK-listed 80% N/A better companies, all being recruitment or service companies from the FTSE 100% Upper quartile or better RPI plus 15% pa or better Support Services, AIM or Fledgling Between RPI plus Pro rata on Between median and indices, as previously disclosed in 6%-13% and RPI plus a straight line upper quartile the FY 2013 and FY 2014 Annual 13%-15% Report. For the awards granted in FY 2014, measured (rather than the actual and TSR performance conditions the Committee adjusted the EPS FY 2013 EPS of 9.1p), thus making were the same as for the awards targets such that, the FY 2012 EPS the targets more stretching. granted on 27 January 2016, as described in the section earlier. of 14.1p became the base level of For the awards granted on 17 EPS from which targets were February 2015 (FY15 - 17) the EPS
Directors’ Interests in Shares (Audited)
Under the new remuneration policy Directors’ interests in the ordinary had any other interest in the share Executive Directors must now build share capital of the Company are capital of the Company or its and maintain a level of shares shown in the table, including any subsidiaries, or exercised any equivalent to at least 200% of base changes since the start of the option during the year, other than salary. All Executive Directors have current year. There have been no as already disclosed. attained this level. changes since then, no Director
Ordinary Shares Ordinary Ordinary Ordinary Shares New Shareholding Shareholding Held at 1 Shares Shares Held at 30 Requirement (% of FY 2017 Director December 2015 Acquired Disposed November 2016 (% Salary) Salary)* Gary Elden 2,780,712 199,129 177,907 2,801,934 200% 1,752%
Alex Smith 219,746 59,344 - 279,090 200% 232%
Steve Quinn 295,675 182,363 106,347 371,691 200% 310%
Justin Hughes 573,940 42,259 61,000 555,199 200% 463%
Clay Brendish 38,300 - - 38,300 - -
Anne Fahy 4,000 - - 4,000 - -
Fiona MacLeod 5,000 - - 5,000 - -
Tony Ward 14,063 - - 14,063 - -
Nadhim Zahawi 43,228 - - 43,228 - -
Denise Collis ------
Note: All figures exclude unvested/unexercised LTIP awards or other interests in share plans, which are shown in the tables earlier in the report. Ordinary shares acquired include shares received in return for tracker shares purchased by the Group, with shares to the value of £257,100 (2015: £528,300) and £105,100 (2015: £554,800), being allotted to the CEO, USA and COO respectively, during the year. * Based on share price as at 30 November 2016 of 276.5p
68 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
Total Shareholder Return (‘TSR’) Performance and the Pay of the CEO Over the Same Period The graph below shows the Total FTSE 350 Support Services and comparators for investors as the Shareholder Return (‘TSR’) of the FTSE Small Cap indices. These are Company has been a constituent Company, compared to the considered the most illustrative currently or in the past.
The table to the right shows CEO Total LTIP Awards historical levels of CEO total Remuneration Annual Bonus Vesting (% of remuneration, as well as annual Year CEO £’000 (% of Salary) Maximum)* bonus and LTIP vesting FY 2016 Gary Elden 1,058.5 67.7% 50.0% percentages over the same FY 2015 Gary Elden 1,284.9 111.3% 50.0% performance period as the TSR chart. FY 2014 Gary Elden 852.2 65.5% 18.5%
FY 2013 Gary Elden 752.8 53.1% 25.5%
FY 2012 Russell Clements 1,295.0 92.9% 88.0%
FY 2011 Russell Clements 1,264.9 67.2% 100%
FY 2010 Russell Clements 1,284.2 113.9% 100%
FY 2009 Russell Clements 616.1 50.0% 44.0%
* Including LTIP awards vesting as disclosed previously in relevant year, i.e. as at then market value.
Historical Levels of and Percentage Change in CEO Remuneration Versus All Group Employees The table to the right shows the Percentage Change FY 2015 - FY 2016 percentage increase for each element of remuneration between Remuneration Element CEO Average for All Employees % the current and previous financial Salary & Fees 4.7% 12.4% periods for the CEO, compared Other Benefits* (13.6%) 17.9% with all Group employees. Annual Bonus (36.4%) 7.8%
* Includes salary supplement in lieu of pension
DIRECTORS’ REMUNERATION REPORT 69 GOVERNANCE
Relative Importance of Spend on Pay The table to the right sets out the Item FY 2016 FY 2015 % Change change to the total employee Dividends plus value of share buy wage costs compared with the £24.9m £19.2m 29.7% change in dividends and share backs buy backs for FY 2016 compared Remuneration paid to Employees £169.0m £149.4m 13.1% to FY 2015. All figures are taken (incl Directors) from the relevant sections of the Annual Report.
The Committee and its Advisors The Committee’s Terms of The Chief Executive Officer and advisor and during the year the Reference (available at the most senior HR representative Company paid them £41,500 (FY www.sthree.com) are reviewed attend meetings by invitation, 2015: £75,890), excluding VAT, for periodically and are in alignment except for matters related to their advice in relation to remuneration with the UK Corporate Governance own remuneration. The Committee matters. Deloitte also provided Code (‘Code’) and ICSA best met four times during the year and advice in relation to tax and practice guidelines. During the no member of the Committee liquidation matters. In addition, year the Committee comprised has any personal financial interest Kepler Associates were appointed only independent Non Executive (other than as a shareholder) in the to assist the Committee with policy Directors, being Tony Ward matters decided. review and were paid £45,141, Chairman (retired as a Director on excluding VAT, during the year. The Committee has recently 30 September 2016), Denise Collis Each of Korn Ferry, Kepler and appointed Korn Ferry as its (Chair from 1 September 2016), Deloitte are members of the independent remuneration advisor, Nadhim Zahawi and Fiona Remuneration Consultants Group following a comprehensive review. McLeod and, as such, meets Code (‘RCG’) and comply with the RCG Although work has commenced, requirements to comprise at least Code of Conduct. The Committee no fees have been paid to Korn three independent NEDs. are satisfied that their advice was Ferry as yet. Previously, Deloitte LLP and is objective and independent. (‘Deloitte’) were remuneration
Statements of Voting at Last Year’s AGM
At the AGM held on 21 April 2016 AGM Resolution For % Against % Withheld the following votes were cast in Directors’ relation to the advisory vote for 2016 Remuneration 95,016,741 99.30 667,933 0.70* - the approval of the Directors’ Report remuneration Report. There was *Votes withheld are not counted in the % shown above no vote on the Remuneration Policy at the 2016 AGM
Approval This report was approved by the DENISE COLLIS Board of Directors, on the date Chair of the Remuneration shown below and signed on its Committee behalf by: 20 January 2017
70 DIRECTORS’ REMUNERATION REPORT GOVERNANCE
CORPORATE GOVERNANCE REPORT
A. Leadership
A. 1 The Role of the Board addition, the Board The Board provides strategic has agreed Terms of and entrepreneurial Reference for its other formal leadership and overall control Committees in order to of the Group, setting a facilitate more efficient framework of prudent and working practices and these effective controls to enable include the GMB, the risks to be properly assessed Investment Committee, a and managed. Its primary Minority Interest ‘Tracker STEVE HORNBUCKLE role is to create value for Shares’ Steering Committee, stakeholders, to agree and a Routine Business Committee, GROUP COMPANY approve the Group’s a Disclosure Committee and SECRETARY long-term strategic CSR Committee, all of which objectives and to develop provide a clear framework robust corporate governance of delegated authorities. All The following pages set and risk management Terms of Reference (available out how the Group has practices, whilst ensuring that at www.sthree.com) are applied the principles the necessary financial and reviewed periodically and and provisions of the UK other resources are in place all Board Committees are to enable those objectives aligned with the UK Corporate Corporate Governance to be met. In undertaking Governance Code and ICSA Code, published by the this, the Board also reviews best practice guidelines. Financial Reporting management performance A.1.1 The Board is and sets the Company’s Council in April 2016 responsible to shareholders values and standards, with all (the ‘Code’), as amended. for the proper management Directors acting in what they of the Group and has The Group complied with consider the best interests of identified key financial and all sections of the Code the Company, consistent with operational areas that require their statutory duties. Certain throughout the year and regular reporting and which powers are delegated to the to the date of this report. enable the performance Remuneration Committee, of senior management to Audit Committee and Nomi- be reviewed and monitored. nation Committee, These are set out in a schedule with details of the roles and of matters reserved to the responsibilities of these Board, which is reviewed on Committees being set out a regular basis. The schedule under the relevant sections. In
CORPORATE GOVERNANCE REPORT 71 GOVERNANCE
outlines all matters requiring A.1.3 Appropriate insurance under a job description specific consent of the Board, cover was in place during the which clearly sets out these which include, inter-alia, the year and continues as at the responsibilities. approval of Group strategy, date of this report, in respect A.3.1 As stated below, on operating plans and annual of possible legal action appointment, the Chairman budget, the Annual Report, against the Directors. met the independence the Interim Report and criteria set out under the trading updates, major A. 2 Division of Responsibilities Code, in terms of having no divestments and capital A.2.1 There is a clear division previous connection with expenditure, meaningful of responsibilities between the Company. acquisitions and disposals, the Chairman and the Chief the recommendation of Executive Officer, set out in A. 4 NEDs dividends and the approval writing and approved by A.4.1 Fiona Macleod is of treasury and risk the Board so that no one the Senior Independent management policies. The individual has unfettered NED (‘SID’) and is available schedule therefore facilitates powers of decision. to shareholders to discuss structured delegation, subject strategy or governance issues to certain financial limits and A. 3 The Chairman or should there be matters provides a practical The Chairman leads the of concern that have not, framework for executive Board in the determination of or cannot, be addressed management/reporting, its strategy and achieving its through normal channels. which seeks to achieve the objectives and is responsible objectives of maintaining for co-ordinating the business A.4.2 The Chairman meets effective financial and of the Board, ensuring its with the NEDs without the operational controls, whilst effectiveness, timing and Executive Directors being allowing appropriate flexibility setting its agenda, although present, either before or after to manage the business. The he has no involvement in the each Board meeting and this current schedule of matters day-to-day running of the is formally minuted, whilst the reserved to the Board is Group’s business. SID holds annual discussions available on the Company’s The Chairman allows with the other NEDs without website at www.sthree.com. adequate debate by all, the Chairman being present and also with the Executives, A.1.2 The Directors of the whilst facilitating an effective in order to appraise the Company, including contribution of the Non Chairman’s performance. biographies, are set out in the Executive Directors (‘NEDs’), Board of Directors section overseeing Board induction A.4.3 Each Director of this Annual Report, with and evaluation, ensuring ensures that if he/she has any further details of Board constructive relations concerns which cannot be Committee membership between each Executive and resolved, about the being set out later in this NEDs and that the Directors Company or a proposed Report. The number of, and receive accurate, timely and action, such concerns are attendance at, Board and clear information to undertake recorded in the minutes, Committee meetings during Board affairs and facilitate whilst upon resignation, the year, is also shown in a effective communication with NEDs are invited to provide table later in this report. All shareholders. The Chief a written statement to the meetings were well attended Executive Officer has direct Chairman for circulation to and, outside these, there was charge of the Group on a the Board, of any concerns. frequent contact between day-to-day basis and overall Directors on a range of responsibility to the Board for matters. the operational and financial performance of the Group,
72 CORPORATE GOVERNANCE REPORT GOVERNANCE
B. Effectiveness
B. 1 Composition of the Board knowledge and experience diversity, including gender. The Board comprises a and the Directors can thereby Succession planning aspects balance of Executive and ensure that the balance are regularly reviewed by NEDs who bring a wide range reflects the changing needs the Committee, in order to of skills, experience and of the Group’s business, and ensure an orderly progression/ knowledge to its deliberations. is refreshed if necessary. Most refreshment of senior The NEDs fulfil a vital role in importantly of all, Board management/Board corporate accountability members feel a strong members and maintain an and have a particular cultural affinity with the appropriate balance of skills, responsibility to ensure that Group, engaging fully as a experience and diversity both the strategies proposed by committed team and in a within the Company and on the Executive Directors are wide variety of activities with the Board. The Chairman’s fully discussed and critically our employees around the Governance Overview and examined, not only in the globe, whether it be an office Strategy section (earlier in best long term interests of visit, conference, or this Annual Report), contain shareholders, but to also take presentation by management. further information on account of the interests of succession and diversity B.1.1 Excluding the customers, employees and aspects. Chairman, the other NEDs other stakeholders. The NEDs have been determined by Under the are all experienced and B.2.1/2 the Board throughout the direction of the Nomination influential individuals and year as being independent in Committee, each formal through their mix of skills and character and judgment with selection process is business experience they no relationships or conducted, using external contribute significantly to the circumstances which are advisors, consisting of a effective functioning of the likely to affect, or could series of interview stages, Board and its Committees. appear to affect, each involving Directors and This ensures that matters are Director’s judgment. other Senior Executives, fully debated and that no against the background of one individual or small group The Board has a B.1.2 a specific role definition and dominates the decision Non-Executive Chairman, objective criteria. Details making process. Directors who is not classed as of the composition, work have a wide range of independent because of his and responsibilities of this experience of various industry position but who met the Committee are set out under sectors relevant to the independence criteria set out the relevant section below. Group’s business and each in the Code on appointment. member brings independent Half the board, comprise of B.2.3 All Directors are judgement to bear in the Non Executive Directors subject to annual re-election, interests of the Company on determined by the board to although NEDs are expected issues of strategy, performance, be independent, as set out to serve for an initial term resources and standards of in the Code of 3 years, which, in normal conduct. The Board is of circumstances and subject to sufficient size to match B.2 Appointment to the Board satisfactory performance/ business needs and members Appointments to the Board re-election at each AGM, have an appropriate and are the responsibility of would be extended to at varied range of skills, vital to the full Board, upon the least a second 3-year term. the success of the Group. recommendation of the NEDs may be requested The composition and Nomination Committee and to serve for a further (third) performance of the Board after appropriate external 3-year term subject to and each Committee is consultation, bearing in mind rigorous review at the periodically evaluated to the Board’s existing balance relevant time and their ensure the appropriate of skills and experience, the agreement. The Company’s balance of skills, expected specific role needs identified, Articles of Association also time commitment, and with due regard for contain provisions regarding
CORPORATE GOVERNANCE REPORT 73 GOVERNANCE
the removal, appointment, on areas of relevance to their and has the opportunity to election/re-election of role in order to facilitate their comment on the matters Directors. professional development. under discussion. Minutes of These measures help to all Committee meetings are B. 3 Commitment ensure that the Directors circulated to all the Directors, B.3.1 For all Board vacancies continue to develop their irrespective of Committee the Nomination Committee knowledge of the Group’s membership. The Group approves the detailed job business and get to know its Company Secretary is specification, which sets out senior management, as well responsible for ensuring good the indicative time as being aware of their information flows between commitment expected. All general responsibilities. In the Board/ Committees and potential Director candidates addition, the Board senior individuals/NEDs, as are required to disclose any encourages Executive well as assisting in other areas significant outside Directors to accept external and has primary responsibility commitments prior to appointments in order to for advising the Board, via the appointment and must broaden their experience, Chairman, on all governance undertake that they have although currently no such matters. sufficient time to meet these, positions are held. in addition to Company B.5.1 Directors are entitled business, particularly in B.4.1 An induction to obtain independent the event of a crisis. programme is tailored for professional advice, at the new appointments to ensure Company’s expense, on the B.3.2 Upon joining, each that it is appropriate for their performance of their duties NED receives a formal role, dependent on previous as Directors, although no such appointment letter which experience. Directors and advice was sought during identifies their responsibilities other Senior Executives the year. All Committees are and expected minimum attend analysts’ briefing serviced by the Group time commitment, being sessions and major Company Secretary’s team typically 2 days per month. shareholders may, upon and are appropriately These letters are available for appropriate request, resourced. inspection at the Company’s meet new NEDs. registered office. B.5.2 Directors have access B.4.2 As part of the annual to the advice and services of B. 4 Development Board evaluation process, the Group Company At scheduled Board and the Chairman assesses and Secretary, who is responsible Committee meetings, agrees any training and to the Board for ensuring that Directors receive detailed development needs in its procedures are complied reports/presentations from respect of individual Directors, with and to assist in arranging management on the including on environmental, any additional information as performance of the Group social and governance required. The appointment or specific areas of focus/ (‘ESG’) matters, if appropriate. and removal of the Group responsibility. NEDs attend the Subject areas identified to Company Secretary is a Group’s sales or other key be addressed during the matter reserved for the Board conferences in order to join last full evaluation exercise as a whole and the last senior management from included risk management, appointment was made in each geographic area to brand, regional and sectoral October 2006. discuss current initiatives. knowledge. Directors are briefed regarding B. 6 Board Evaluation their responsibilities and on B. 5 Information & Support B.6.1/2 As recommended other relevant regulatory, Board and Committee by the Code, an annual legal, governance or meeting papers are Board/Committee evaluation accounting matters. Regular circulated well in advance was undertaken during the updates are provided on all of the relevant meeting and period under review. This relevant topics, as required where a Director is unable took the form of one on one and Directors are encouraged to attend he/she is provided meetings with the Chairman to attend external seminars with a copy of the papers to elicit feedback on what
74 CORPORATE GOVERNANCE REPORT GOVERNANCE
was working well, or not, with and individually, the to remain in office for up to suggestions of things for the performance of the Board, three years before Annual Board to stop or start doing. each Committee and each General Meeting (‘AGM’) The outputs of this exercise will Director was and is effective re-election, all Directors now be implemented in FY 2017 and that Directors retire and seek re-election and will build upon the demonstrate full commitment annually, as recommended lessons gained in prior in their respective roles. by the Code. evaluations, to ensure that See also the Chairman’s B.7.2 Reference to recommendations resulting Governance Overview performance and from each review are section earlier in the commitment of Directors, followed up and that year on Annual Report. as well as an explanation of year progress is measured. B.6.3 The SID holds annual the reason why each retiring As part of this process, the discussions with the other Director should be re-elected, Chairman also discusses the NEDs without the Chairman are all provided in the Notice individual performance of being present and also with of AGM. The Company Directors, in consultation with the Executives, in order to also complies fully with the other Directors. The last appraise the Chairman’s Code in respect of its AGM external evaluation was performance. voting arrangements and completed in March 2015. RNS disclosure of the voting The evaluation process is B. 7 Re-election outcome. considered to be both formal B.7.1 Although the and rigorous and has led to Company’s Articles of the conclusion that, overall Association permit Directors
C. Accountability
C. 1 Financial & Business developments of the Group’s C.1.3 A ‘going concern’ Reporting business. This provides a fair, statement is set out towards The Strategy section, balanced and understandable the end of the Corporate Chairman’s, CEO’s and other assessment of the Group’s Governance Report section. officers’ sections of this position and prospects, in Annual Report, taken accordance with the Code. C. 2 Risk Management, Internal together, provide information Control & viability The Directors’ relating to the Group’s C.1.1 responsibility for preparing C.2.1/2 The Board’s activities, its business and the financial statements and statement regarding its strategy and principal risks the statement by the auditors review of the effectiveness of and uncertainties faced by about their reporting the Group’s risk management, the business, including responsibilities are set out in internal control systems and analysis using financial and the Directors’ Report and viability statement is set out other KPIs where necessary. Independent Auditors’ later in this report. These, together with the Report, respectively. Directors’ Remuneration C. 3 Audit Committee Report, Directors’, Corporate C.1.2 An explanation of the & Auditors Governance, CSR, Audit business model and the Details of the composition, Committee and Nomination strategy for delivering the work and responsibilities of Committee Reports provide objectives of the Group is this Committee are set out in an overview of the Group, included as part of the the Audit Committee Report. including environmental Strategy section, Chairman’s, and employee matters and CEO’s and other officers’ give an indication of future sections of this Annual Report.
CORPORATE GOVERNANCE REPORT 75 GOVERNANCE
D. Remuneration
D. 1 Level & Components D. 2 Procedure in this report and in the The Directors’ Remuneration Details of the composition, Directors’ Remuneration Report sets out in full, the work and responsibilities of report. policies and practices, which the Remuneration demonstrate the Company’s Committee are set out under implementation of this Code the relevant section later principle and provisions.
E. Relations with Shareholders
E. 1 Dialogue with Shareholders through the Executive provide shareholders with the Communications with Directors. During the year, option to direct their proxy to shareholders are given a both the Chairman and SID vote either for or against the high priority. The Company conversed with shareholders, resolution or to withhold produces Annual and Interim with appropriate feedback their vote. Reports for shareholders and being provided to the Board. The Company’s the Company’s website E.2.2 Views of analysts, registrars ensure that all valid contains up-to-date E.1.2 brokers and institutional proxy appointments received information on the Group’s investors are sought on a non for the AGM are properly activities, investor presentations attributed basis via periodic recorded and counted and and published financial sentiment surveys and these, a schedule of proxy votes results. Shareholders can also as well as regular analyst cast is made available to subscribe for e-mail alerts of and broker publications, are all shareholders attending important announcements circulated to all Directors to the meeting. There is also made. There are regular ensure that they develop full disclosure of the voting meetings with institutional a full understanding of the outcome via RNS and on the shareholders, whilst ensuring views of major shareholders. Company’s website as soon that price sensitive information Any issues or concerns can as practicable after the AGM. is released at the same time be raised with the Board, and to all, in accordance with the Directors routinely receive E.2.3 All Board members requirements of the UK Listing regular reports on share price, are encouraged to attend Authority. Presentations are trading activity and sector the AGM and the Chairs of made after the Company updates. the Audit, Nomination and has published its full and half Remuneration Committees yearly results and there was are available to answer E. 2 Constructive Use of AGM also dialogue on specific questions. issues, such as the LLP, tracker The Board views the AGM share model, LTIP, as a valuable opportunity to E.2.4 The Notice of AGM remuneration issues and communicate with private is posted at least twenty recruitment of Chairman. and institutional investors and working days prior to the welcomes participation. date of the meeting and the E.1.1 The Chairman, SID and Company’s website contains E.2.1 The Company other NEDs are available copies of all Notices issued. to shareholders to discuss proposes a separate governance or strategy issues, resolution on each should there be matters substantially separate issue of concern that have not, and the proxy appointment or cannot, be addressed forms for each resolution
76 CORPORATE GOVERNANCE REPORT GOVERNANCE
Board & Committee Composition & Attendance (In accordance with A.1.2 of the Code)
As stated, the Board has regularly and are aligned meetings held during the year, the established various Committees, closely with the UK Corporate Board met for a separate strategy each with clearly defined terms of Governance Code and ICSA session and for the AGM. The reference, procedures and powers. best practice guidelines. number of Board/ Committee All Terms of Reference (available meetings held and attendance at In addition to the scheduled Board at www.sthree.com) are reviewed each is set out in the table below.
Board Audit Committee Nomination Committee Remuneration Committee Directors (10 meetings) (4 meetings) (5 meetings) (4 meetings)
Clay Brendish 9 - 5 -
Gary Elden 10 - - -
Alex Smith 10 - - -
Steve Quinn 10 - - -
Justin Hughes 10 - - -
Fiona Macleod 8 2 4 3
Denise Collis1 3 - 3 3
Anne Fahy 10 4 5 -
Nadhim Zahawi 8 2 3 3
Tony Ward 2 8 - 4 4
1 Denise Collis joined the Board, Remuneration and Nomination Committees on 1 July 2016 and replacing Tony Ward as Remuneration Committee Chair as of the 1 September 2016. 2 Tony Ward retired from the Board on the 30 September 2016.
Where Directors were unable to separate discussions were held contained in the Remuneration, attend meetings due to other with the Chairman on all matters Audit and Nomination Committee unavoidable commitments, full of relevance. Further details of sections of this Annual Report. Board packs were distributed and each of the Board Committees are
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 material risks and controls, Processes are designed to Internal Control Systems and including financial, operational manage, rather than eliminate, Identification of Principal Risks, and compliance controls. the risk of failure to achieve the Including Environmental, Social Executive Directors and senior Group’s objectives and accordingly & Governance (‘ESG’) Matters. management are responsible for provide reasonable, not absolute, The Board has overall responsibility the implementation and assurance against material for monitoring the effectiveness of maintenance of the underlying misstatement or loss. The Board the Group’s risk management and control systems, subject to such considers, in assessing what internal control systems in order to review. The Audit Committee works constitutes reasonable accuracy, safeguard shareholders’ closely with the Board in this area the materiality of financial and non investments and the Group’s assets and, on behalf of the Board, has financial risks and the relationship and, at least annually, to carry out identified no significant failings or between the cost or benefit, a robust assessment of risks and weaknesses from its review. The resulting from such systems. In order the effectiveness of associated Group’s Internal Audit function to manage the business effectively, controls. This monitoring and review also assists to facilitate the the Board assesses actual results process includes assessing all review process. compared with budgeted and
CORPORATE GOVERNANCE REPORT 77 GOVERNANCE
forecast performance, as well as arising from ESG matters where operation for the period under against other KPIs, on an ongoing relevant. The process is consistent review and up to the date of basis. The process includes risks and with the FRC’s latest guidance on approval of this Annual Report. opportunities to enhance the value Internal Control and has been in
Assessment of Risk and Enterprise Risk Management (‘ERM’) Framework ERM Framework and tracking of improvement ERM Arrangements The Board, supported by the Audit areas: The Group’s ERM arrangements Committee, has overall responsibility - A Board approved risk have been designed to meet, as for risk management activities and management policy and closely as possible, the appropriate implementing policies to ensure procedures are in place, BSI standard (BS 31000) on risk that all risks are evaluated, communicated Group-wide; management processes. measured and kept under review - Group risk appetite statements Consequently, the Group has by way of appropriate KPIs and this reviewed, with strategic and continued to reap the benefits forms the basis for the Group’s ERM localised measures being of its enhanced ERM framework framework. Under this framework, agreed, monitored via through improved strategic and all Executive, Regional and Country appropriate KPIs, with bonus individual region/sector focus on Directors, key support functions also being subject to specific key risk areas, with greater clarity and other relevant parties take risk or compliance targets, on risk ownership, and the ownership of their related risks, where relevant; identification of opportunities as creating specific sub-Group risk well as threats, whilst also facilitating - Job descriptions include registers, with risks being better monitoring of progress, reference to risk responsibilities. categorised according to mitigation measures and ensuring probability and impact and In light of the FRC’s updating of the appropriate forward looking measured according to strictly Code in the areas of risk monitoring, assessment, including, where defined criteria, as set out under reporting and viability and in order relevant, ESG matters (for example the Board approved risk to enable the Board to satisfy itself environmental impacts, social management policy. More on the robustness of the Group’s issues such as how the Group significant risks are distilled to form internal control and risk evaluation/ manages relationships with its the Group’s key risk register, which monitoring processes, the Board employees, suppliers, customers is regularly reviewed by the Board. last year sought assistance from and the communities in which it external risk specialists to review its operates, and governance issues ERM Processes current processes and enhance its such as the Company’s leadership, As part of these processes, regular risk appetite setting and reporting executive pay, audits, internal strategy and risk workshops are procedures. controls and shareholder rights). held, bringing together Executive As part of this work, a detailed Directors, Regional MDs, Country Investment Association (‘IA’) analysis of risk appetite was Directors and key function heads, Guidelines on Responsible undertaken, using key operational with ERM specialists in attendance, Investment Disclosures parameters to set and measure underpinned as follows: In respect of the Company’s the Group’s risk profile. This will be compliance with the IA guidelines • Senior Directors own localised risk revisited periodically at Audit/ on responsible investment registers, with regular Board meetings as well as at a disclosures, the Board confirms the presentations made to the Board Board/Executive annual risk following, in relation to its which include progress on risk workshop, to monitor both the responsibilities, policies and mitigation; actual and forecast position procedures, with appropriate against these parameters. • Board or Audit Committee KPIs detailed within the Strategy meetings may include As a result, the Board is now able section: presentations by MDs/Country to sign off with even greater • As part of its ERM procedures, the Directors, etc, on their approach confidence that these processes Board takes into account any to business risk management are robust, as required by the Code.
78 CORPORATE GOVERNANCE REPORT GOVERNANCE
material ESG matters. Adherence expectation that the Group and certainty, particularly within the to these procedures and the Company have adequate recruitment sector, where there is disclosure of relevant issues is resources to continue in limited forward visibility. This monitored by the Internal Audit operational existence for and into assessment was made taking function and also reviewed by the foreseeable future. For this into account the Company and external risk specialists, as part reason, the Directors continue to Group’s current position and of the overall risk management adopt a going concern basis in prospects, its strategy, the agreed framework. preparing this Annual Report. risk appetite and the principal risks • The Board has received and mitigation (as detailed in the adequate information to make Viability Statement strategic section of this Annual this assessment by way of its ERM The Board has assessed the viability Report), all of which could procedures and, where of the Company and the Group change and impact the future necessary, has taken account over a 5 year period to 30 November performance of the Company of ESG matters in training and 2021, taking account of the and the Group. bonus structures. Group’s current financial position • The Board has ensured that the and the potential impact of the Corporate and Environmental Company has in place effective principal risks and mitigation Responsibility systems for managing and documented in the strategic The Board recognises that the mitigating principal risks. Where section of this Annual Report. Group has a responsibility to act relevant, these incorporate Based on this assessment and the ethically in relation to the physical performance management various other matters also and social environment in which systems and appropriate considered and reviewed by the it operates, and that failure to do remuneration incentives. Board during the year, the Board so could adversely impact on the has a reasonable expectation that Group’s long and short term value • There are no ESG-related risks or the Company and the Group will as a result of financial penalty and/ opportunities that may be able to continue in operation or loss of stakeholder support. It significantly affect the Company’s and to meet liabilities as they fall takes such responsibilities seriously, short and long term value or the due over the period to paying due regard to international future of the business. 30 November 2021. and local laws in all its dealings. Further details are disclosed in Going Concern Statement In making this assessment, the the CSR Report (page 35). The Group’s business activities, Board has reviewed a 5 year together with the factors likely to financial forecast, taking into Share Capital and Directors’ affect its future development, account the Group’s strategy, cash Powers to Issue or Buy Back performance, its financial position, flows, dividend cover, debt facilities Shares cash flows, liquidity position and and other key financial metrics Information on the Company’s borrowing facilities are described in over the period. The key assumptions share capital and Directors’ the Strategic section of this annual in the forecast were flexed powers to issue or buy back report. In addition, the notes to the (individually and in combination) shares is set out within the financial statements include details to evaluate the potential impact Directors’ Report. of the Group’s treasury activities, on the Group’s liquidity and debt funding arrangements and requirements under various scenarios. objectives, policies and procedures These assumptions included: sales for managing various risks, including headcount, gross profit yield per STEVE HORNBUCKLE liquidity, capital management and sales consultant, infrastructure Group Company Secretary credit risks. and support costs. 20 January 2017 The Directors have considered the In making this statement, it is Group’s forecasts, including taking recognised that not all future account of reasonably possible events or conditions can be changes in trading performance predicted, and future assessments and the Group’s available banking are subject to a level of uncertainty facilities. Based on this review, and that increases with time. Future after making enquiries, the outcomes cannot, therefore, be Directors have a reasonable guaranteed or predicted with
CORPORATE GOVERNANCE REPORT 79 GOVERNANCE
AUDIT COMMITTEE REPORT
During the year, I continued to recognition, judgements in develop my understanding of the accounting for tracker shares and business and its system of internal presentation of Alternative controls together with its key risks Performance Measures in the and uncertainties, whilst further Annual Report. cementing relationships with Having reviewed the content of internal and external auditors, the the Annual Report, the Committee finance team and Group considers that, taken as a whole, it is Company Secretary. I have now fair, balanced and understandable undergone a thorough induction, and provides the information which included office visits and necessary for shareholders to ANNE FAHY meetings with senior leaders across assess the Company and the AUDIT COMMITTEE CHAIR the business, and have completed Group’s performance, business a full annual cycle. model and strategy. FY 2016 was another busy year As Chair of the Audit During the course of the year, for the Committee. In addition to the Committee also considered, Committee, I am pleased supporting the Board in further amongst other matters, project to present, on behalf of embedding the revised Code implementation, technical the Board, its Audit provisions on risk, control and accounting matters and their viability, there was further Committee Report, appropriate disclosure, and strengthening of the internal treasury matters, as well as fraud prepared in accordance control environment by ensuring and whistleblowing. As with last with the UK Corporate the independence, effectiveness year, it also took the opportunity to Governance Code and quality of both internal and review and update its terms of external audit processes, as well as (the ‘Code’). reference, which it now intends of the Committee itself. In addi- to do annually, in line with best tion, work is now well underway to practice. complete an audit tender process in early FY 2017. All of the above is covered in the body of this report. Information on The Committee also focused on the Committee meetings held and the key judgements and estimates, attended by members is set out in which underpin the financial the table in the Corporate statements, namely capitalisation Governance Report. of IT development costs, revenue
80 AUDIT COMMITTEE REPORT GOVERNANCE
Audit Committee Committee Composition The Committee consists of Anne CEO, CFO, Group Company function heads also attend Fahy (Chair), Fiona MacLeod Secretary, External Auditors, meetings by invitation. and Nadhim Zahawi. The Group Internal Audit and Finance
Committee Membership, including Recent and Relevant Financial, Audit or Sector Experience Anne Fahy is a Chartered Nadhim Zahawi are degree the Committee, taken as a whole, Accountant and has held senior educated and have held general is considered to have appropriate financial positions, most recently management positions, which sector experience. at BP, whilst Fiona MacLeod and include senior financial responsibility;
The Committee’s Principal Responsibilities The Committee’s Terms of and reporting, including and ensuring appropriate Reference were reviewed and supporting the Board in overseeing follow up; updated during the year. Duties risk management activity, • Assessing procedures for principally comprise as follows: advising on risk appetite and detecting fraud or preventing • To monitor the integrity of the assessing material breaches bribery; and of risk controls; consolidated financial • Where requested by the Board, statements of the Group and • To monitor and review the advising on proposed strategic any announcements relating to effectiveness of the Group’s transactions, including financial performance; Internal Audit function; conducting due diligence • To review significant financial • To agree the external auditors appraisals and focusing on reporting issues and judgements; engagement terms, scope, fees, risk aspects. • Where requested by the Board, non-audit services, to monitor The Committee also took the to advise whether, taken as a and review the external auditor’s opportunity to carry out an whole, the Annual Report is fair, effectiveness and associated assessment of its effectiveness, in balanced and understandable independence and recommend order to consider any improvements. and provides the information re-appointment to the Board This was discussed at the November necessary for shareholders to and shareholders; 2016 Committee meeting. The assess the Group’s performance, • Reviewing arrangements by Committee is considered to be business model and strategy; which the Groups’ employees functioning effectively, with areas may raise concerns about • To review the Group’s internal for continued enhancement possible improprieties in financial financial controls, internal control identified, to be implemented reporting or other such matters and risk management systems during FY 2017.
Risk Management, Internal Controls, Key Focus Areas and Viability The Committee supports the Board This activity includes monitoring of The Committee works closely with in its overall responsibility for risk the effectiveness of the Group’s risk the CFO, Group Company management activities and management and internal control Secretary, Internal Audit team and implementing policies to ensure systems in order to safeguard external auditors to ensure that any that all risks are evaluated, shareholders’ investments and the potential material misstatement measured and kept under review Group’s assets and, at least risks are identified and targeted in by way of appropriate KPIs, as part annually, carrying out a robust terms of the overall audit strategy of the Group’s ERM framework. assessment of risks and the and that audit resources and the Presentations from senior effectiveness of associated efforts of the engagement team management across the business controls on behalf of the Board. are correctly allocated. This helps are provided to the Board to No significant failings or weaknesses to ensure the effective planning further develop information, were identified by the Committee and performance of the external understanding and debate on risks. from this review. and internal audit teams, focused
AUDIT COMMITTEE REPORT 81 GOVERNANCE
on risk, and has resulted in a recent years. again, this year was reviewing continued improvement in the viability statement, to enable A key focus area for the Committee, processes and controls over Board sign off.
External Auditors Responsibilities in Relation to External Auditors During the year the Committee recommendation for the process, taking into consideration carried out each of the following: appointment or re-appointment relevant UK professional and • In accordance with the new EU of external auditors and approval regulatory requirements; Audit Regulation guidance on of their remuneration and terms • Updated the policy on the audit tendering, the Committee of engagement will be put to engagement of the external made recommendations to the shareholders; auditors and supply of non-audit Board to conduct a formal audit • Reviewed and monitored the services in light of recent tender which will be completed external auditor’s independence regulatory changes. in early FY 2017. Once this and objectivity and the process is concluded, a effectiveness of the audit
Appointment, Objectivity and Independence The Committee will consider and Both the Committee and the requirements. The external auditors recommend to the Board and external auditors have safeguards are required to rotate audit shareholders, the appointment or in place to ensure that objectivity partners responsible for the Group re-appointment of external auditors and independence is maintained audit every 5 years and the current and approval of their remuneration and the Committee also considers lead audit partner was appointed and terms of engagement, independence taking into in 2014. following the conclusion of the consideration relevant UK formal audit tender in early FY 2017. professional and regulatory
Performance and Tendering During the year, the Committee to PwC’s satisfactory performance carried out in addition to auditing reviewed performance and fees and independence. The Committee activities. Any such activities and met with the external auditors, therefore considers that the existing must first cease, accordingly. The PricewaterhouseCoopers (‘PwC’) relationship has worked well and external auditor has ceased such regularly, without management remains satisfied with PwC’s services in FY 2016 in order to be present. PwC replaced BDO as effectiveness. considered for tender. In auditor in 2000 and the Committee accordance with the regulations, Whilst there are no contractual considered that factors such as a formal tender process was obligations restricting the Group’s regular audit partner rotation, started in FY 2016 and will be choice of external auditors, per se, adoption of enhanced audit completed in FY 2017. EU rules now prevent certain techniques, as well as competitive ‘prohibited’ services from being fee structure have all contributed
Framework used by the Committee to Assess Effectiveness of the External Audit Process The Committee has adopted engagement partner, planning effective audit process, a broad framework to review and scope of the audit, including communications by the auditor the effectiveness of the Group’s a dedicated audit planning with the Committee, how the external audit process and audit afternoon, with identification of auditors support the work of the quality which includes: assessment particular areas of audit risk, the Committee, how the audit of the audit partner and team with planned approach and execution contributes insights and adds particular focus on the lead audit of the audit, management of an value, a review of independence
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and objectivity of the audit firm The effectiveness of management independent audit and the and the quality of the formal audit in the external audit process is booking of any audit adjustments report to shareholders. assessed principally in relation arising as well as the timely to the timely identification and provision of documents for review Feedback is provided to both the resolution of areas of accounting by the auditors and the external auditors and management judgement, the quality and Committee. by the Committee and its timeliness of papers analysing attendees, based on the above, those judgements, management’s with any actions reviewed by approach to the value of the Committee.
Policy on Non-Audit Work The Committee sets clear incurred, as well as independent Ethical Standards and FRC guidelines on non-audit work, safeguards established, in order to guidance, to clearly set out: which is only permitted where it consider whether to use other firms • which types of non-audit work does not impair independence or and continues to use other firms to are prohibited; objectivity and where the provide general tax advice or for • the types of work for which Committee believes that it is in the other projects. external auditors can be Group’s best interests to make use Following the introduction of EU engaged without Audit Chair of built up knowledge or experience. Ethical Standards for Auditors referral, provided such services Such work has included services during the year the Committee fall below £25,000 and are not required due to legislation and reviewed its policy on non-audit specifically prohibited; and assurance work or other specialist work and has updated it. As such, • for which types of work services. The Committee the policy aligns with regulations Audit Chair referral is needed, i.e. continuously monitors the quality to prohibit a number of non-audit which are above £25,000. and volume of this work, fees services, whilst also meeting APB
Fees paid to External Auditors for Non-Audit Work Audit fees for the year increased appropriate and the fees justified. effectiveness review. The fees are by 2% YoY, mainly due to change in Non audit fees have decreased set out in the notes to the financial subsidiary audit scope. The compared to prior years, with this statements. Committee reviews all non-audit year’s fees primarily related to work against policy to ensure it is non-UK tax compliance and an IT
Key Judgements and Estimates in the Financial Statements and Significant Issues Considered in Relation Thereto Significant areas considered by report using Alternative capitalises eligible system project the Committee in relation to the FY Performance Measures (being development costs in Intangible 2016 Annual Report and financial adjusted measures of reported assets. These include the cost of statements and how these were profits) as adjusting items. The Audit directly attributable internal time addressed include the following: Committee therefore focused on spent by certain employees. this area to ensure these disclosures Determining whether the project Alternative Performance were understandable to readers, development costs satisfy the IAS Measures - certain costs have explained, reconciled and 38 recognition criteria is judgemental. been incurred during the year balanced when read in Business cases, including an which do not satisfy the Group’s conjunction with the financial assessment of the project against policy for classification as statements which do not separate recognition criteria, are required for exceptional items in the financial these costs. all significant projects and statements. However, as they are approved by the Group’s Strategic relevant to understanding the Development Committee. A key Group’s performance these have Capitalisation of Development – where the criteria in IAS 38 judgement relates to defining and been disclosed and explained Costs Intangible assets is met, the Group quantifying the benefits of a within other parts of the Annual
AUDIT COMMITTEE REPORT 83 GOVERNANCE
project. The Audit Committee revenue. However, the revenue cash and therefore the treatment monitors the benefits of completed is adjusted to reflect actual data of this scheme in the financial projects compared to those set out from contractor timesheets statements as equity settled is in the original business cases via an received 2-3 weeks after the judgemental. Given the material annual review which is performed year-end and where timesheets quantum of amounts involved, the by Internal Audit. This provides an are not submitted. The key Committee focused on this indicator not only of the rigour of judgement is the time period of significant judgement. In order to the benefits defined/quantified in three months between accrual satisfy itself that treatment of the original business cases but also the of a timesheet and the write off scheme as equity settled is areas for further improvement or of this revenue if a timesheet is appropriate, the Committee consideration in open projects’ not received and approved. verified the practice to date has business cases. The external Any difference compared to been to settle tracker shares using auditors have reported to the the actual time worked by the SThree plc shares, and sought Committee on the results of their contractor would result in the reconfirmation from the Board that testing in this area. The judgements amount payable to the contractor it is the ongoing intention to settle which have been applied are also and accrued revenue receivable the scheme in this way. This policy discussed with management and from the client being adjusted in is disclosed within the financial considered to be appropriate by the next financial year. statements. the Committee and continue to The judgement applied, and the When tracker shares are settled be in line with IFRS requirements. assumptions underlying these using treasury shares the judgements are considered accounting requires judgement. Revenue Recognition - contract appropriate by the Committee The Companies Act is not explicit revenue is recognised when the and continue to be in line with IFRS on how the reissue of treasury supply of professional services has requirements. The Committee also shares should be accounted for in been rendered. This includes an noted adjustments that would be this scenario. The Audit Committee assessment of professional services made to GP based on timesheets reviewed legal advice obtained received by the client for services actually received post year-end by management in this area which provided by contractors between and remains comfortable that any confirms the appropriateness of the date of the last received difference is not material. External the treatment adopted within the timesheet and the year end. and internal auditors have verified financial statements, as disclosed Revenue is therefore accrued for procedures around revenue further in the notes to the financial contractors where no timesheet recognition and reported their statements. The Audit Committee has been received, but the findings. also reviewed the disclosure of this individual is ‘live’ on the Group’s judgement in the notes and systems, or where a customer has – the tracker share considered it to be appropriate. not yet approved a submitted Tracker Shares arrangements are complex in timesheet. Such accruals are nature and therefore challenging – removed after three months if no Material Misstatements to disclose in a way that is management confirmed to the timesheet is received or customer understandable to the reader Committee that they were not approval obtained. The amount of whilst continuing to highlight the aware of any material misstatements, contractor revenue that is accrued judgements involved. management override or fraud rather than billed at each period and the external auditors end is significant. In light of this, each year, the confirmed that they had found Committee re-examines the key The value of unsubmitted no evidence of such during the areas of judgement in order to timesheets for each individual course of their work. be satisfied that these are clearly contractor is system generated disclosed. There are significant After reviewing reports from and judgements are applied accounting differences (generally management and following its principally to the number of hours with respect to measurement) discussions with the external worked. The number of hours when comparing the treatment auditors, the Committee is satisfied worked is system generated based of an equity settled and a cash that the financial statements on the contractual hours and work- settled share based payment appropriately address critical ing days for each contractor and scheme. The tracker share scheme judgements and key estimates, adjusted for expected holidays or gives the Group the choice to both in respect of the amounts other events that could reduce the settle in either SThree plc shares or reported and the disclosures.
84 AUDIT COMMITTEE REPORT GOVERNANCE
Internal Audit Function The Internal Audit function The Head of Internal Audit has undertaken by Internal provides independent assurance direct access to the Committee, Audit during the reporting period and testing around processes and and meets regularly with both the and throughout the financial year. procedures, as part of the Group’s Committee and its Chair without The Internal Audit team has internal control processes. The management present to consider continued to enhance the risk function carries out a wide variety the Internal Audit work programme, management framework and work of audits including operational as which is approved in advance by with managers across the globe well as ad hoc and project based the Committee. to further develop and embed the reviews. risk framework and methodology For FY 2016, the programme was at a local level, whilst also ensuring The Committee oversees and focused on addressing both that the Internal Audit plan is monitors the work of the Internal financial and overall risk closely aligned to risk. Audit function, which carries out risk management objectives across based reviews of key controls and the Group, with reviews carried out, The Committee ensures that the processes throughout the Group findings reported to the Committee, Group’s Internal Audit function on a rolling cycle, including recommendations tracked and remains at an appropriate size and resources, scope and alignment their close out monitored. No skill mix for the business and firmly with principal risks and significant weaknesses were believes that this function remains effectiveness of the function. identified from the risk management effective and continues to add or internal control reviews significant value.
Fraud The Committee reviews the reported to senior management Committee. During the year in procedures for the prevention and and are investigated by Internal question, no frauds of a material detection of fraud in the Group. Audit, with the outcome of any nature were reported. Suspected cases of fraud must be investigation reported to the
Anti-Bribery and Corruption and Business Ethics The Group maintains a zero and hospitality. This policy applies standards of behaviour by which tolerance approach against throughout the Group. A gifts and all employees are bound. This is corruption. It has an established entertainments register is maintained based on the Group’s commitment anti-bribery and corruption policy, to ensure transparency. to acting professionally, fairly and which includes guidance on with integrity. The Group also has a Code of the giving and receiving of gifts Conduct which sets out the
Whistleblowing Hotline The Group has in place a any matters of concern, where this to refresh communication of the dedicated independent does not conflict with local laws or whistleblowing procedures and whistleblowing hotline, as part of customs (see the Company related policy. Since its inception, the arrangements set up and Information and Corporate there has been one issue raised monitored by the Committee, so Advisors section for details). During on the hotline, which was fully that employees are able to report the year, the opportunity was taken investigated by Internal Audit.
ANNE FAHY Audit Committee Chair 20 January 2017
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NOMINATION COMMITTEE REPORT
Committee Composition, Including a Majority of Independent Non Executive Directors (NEDs) The Committee consists of Clay Nadhim Zahawi and thus complies Brendish (Chairman), Denise Collis, with Code requirements. Fiona MacLeod, Anne Fahy and
Summary of Terms of Reference The Committee’s terms of The Committee also considers reference are, broadly, to regularly future succession planning for review the structure, size and Board or other Senior Executive CLAY BRENDISH composition (including the skills, roles, reviewing leadership and NOMINATION knowledge, experience and role needs, bearing in mind the diversity) of the Board, make balance of skills, knowledge, COMMITTEE CHAIR recommendations with regard to experience and diversity already any changes and to review and on the Board, to maintain an prepare relevant job descriptions appropriate balance. I am pleased to present for new appointees. to you the Nomination Committee report. Use of External Search Consultants The Committee engages external Committee first conducted an The report provides search consultants with respect to evaluation of the balance of skills, both Executive and Non-Executive knowledge and experience on the underlying detail on appointments and considers Board and, in the light of this, the Committee and applicants from all backgrounds, as prepared an appropriate its activities during the was the case for the most recent description of the role and year. Information on the external appointment, being Denise capabilities required for the Collis, who was appointed as a particular appointment, with the Committee meetings Non-Executive on 1 July 2016 and successful appointee being held and attended by Remuneration Chair on 1 selected from candidates members is set out in the September 2016. For this and other proposed by external advisors table in the Corporate previous appointments, the and chosen entirely on merit. Governance Report, whilst details of the Succession Planning Succession planning and adequate pipeline into the external evaluation development initiatives are Executive team, as well as finalising undertaken of the board ongoing throughout the Group to the appointment of Denise Collis to and its committees is set ensure that there is an appropriate replace Tony Ward as Remuneration out in the Chairman’s management pipeline at all levels. Committee Chair. See also the During the year, this work was Chairman’s Governance Overview Governance Overview. mainly focused on ensuring the section earlier in the Annual Report. continuing development of and
CLAY BRENDISH Nomination Committee Chair 20 January 2017
86 NOMINATION COMMITTEE REPORT GOVERNANCE INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC
Report on the Financial Statements Our Opinion • The Consolidated income The financial reporting framework In our opinion: statement and the Consolidated that has been applied in the statement of comprehensive preparation of the financial • SThree plc’s Group financial income for the year ended statements is applicable law and statements and parent company 30 November 2016; IFRSs as adopted by the European financial statements (the ‘financial Union and, as regards the parent statements’) give a true and fair • The Statements of financial company financial statements, as view of the state of the Group’s position as at 30 November 2016; applied in accordance with the and of the parent company’s • The Consolidated and Company provisions of the Companies affairs as at 30 November 2016 statements of changes in equity Act 2006. and of the Group’s profit and the for the year then ended; Group’s and the parent • The Statements of cash flows The Scope of Our Audit and Our company’s cash flows for the for the year then ended; and Areas of Focus year then ended; • The notes to the financial We conducted our audit in • The Group financial statements statements, which include accordance with International have been properly prepared in a summary of significant Standards on Auditing (UK and accordance with International accounting policies and other Ireland) (‘ISAs (UK and Ireland)’). Financial Reporting Standards explanatory information. (‘IFRSs’) as adopted by the Certain required disclosures have We designed our audit by European Union; been presented elsewhere in the determining materiality and • The parent company financial Annual Report, rather than in the assessing the risks of material statements have been properly notes to the financial statements. misstatement in the financial prepared in accordance with These are cross-referenced from statements. In particular, we looked International Financial Reporting the financial statements and are at where the directors made Standards (‘IFRSs’) as adopted identified as audited. subjective judgements, for example by the European Union and as in respect of significant accounting applied in accordance with the estimates that involved making provisions of the Companies Act Our Audit Approach 2006; and OVERVIEW • The financial statements have Materiality • Overall Group materiality: £1.9 million representing 5% of been prepared in accordance profit before tax (2015: £1.9 million which represents 5% of with the requirements of the profit before exceptional items and tax). Companies Act 2006 and, as regards the Group financial Audit • The Group has a shared service centre in the UK which statements, Article 4 of the IAS Scope operates the Group’s accounting function. Regulation. • The whole Group was audited by the UK audit team at the shared service centre.
What We Have Audited Areas of • Capitalisation of internal costs spent on system development; SThree plc’s financial statements Focus • Accrued revenue cut-off; and comprise: • Significant judgements in accounting for tracker shares.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC 87 GOVERNANCE
assumptions and considering future The risks of material misstatement financial statements as a whole, events that are inherently uncertain. that had the greatest effect on our and any comments we make on As in all of our audits, we also audit, including the allocation of the outcome of our procedures addressed the risk of management our resources and effort, are should be read in this context. This override of internal controls, identified as ‘areas of focus’ in the is not a complete list of all risks including evaluating whether there table below. We have also set out identified by our audit. is evidence of bias by the directors how we tailored our audit to that may represent a risk of material address these specific areas in misstatement due to fraud. order to provide an opinion on the
Area of focus How our audit addressed the area of focus CAPITALISATION OF INTERNAL COSTS SPENT ON SYSTEM DEVELOPMENT We focused on this area because of the significant level We tested the key control surrounding the approval of of judgement by the directors involved in determining business cases for IT projects, which was the review by whether internal costs incurred in respect of system the Strategic Development Committee. We obtained development satisfy the requirements of the financial evidence of this approval for a sample of projects. reporting framework (International Accounting We discussed the anticipated benefits with relevant Standard 38 Intangible assets) to be capitalised, personnel and obtained satisfactory explanations for including that they are separable from the other assets the assumptions made. To verify this we also of the business and will provide future economic examined internal analyses on the outcome of benefits for the Group. completed projects and considered whether the Refer to Note 11 to the financial statements, Operating planned benefits were being realised. & Financial Review (page 16), critical accounting We tested that a sample of projects where costs were estimates and judgements (Note 1) and Audit capitalised satisfied the recognition criteria in IAS 38. Committee Report. We also tested a sample of internal costs to supporting payroll records and verified the allocation of employee costs to the correct projects.
Where projects were completed, we tested their functionality to evaluate whether they were fit for purpose and operating as intended in the original business case.
We noted that there were a number of smaller projects being capitalised as intangible assets which collectively amounted to £0.9 million. In the case of these projects we verified that these are functionality changes or enhancements to existing systems rather than updates or maintenance.
88 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC GOVERNANCE
Area of focus How our audit addressed the area of focus ACCRUED REVENUE CUT-OFF AND REVENUE RECOGNITION The Group’s accounting process means that there is a For contact revenue we tested the automated controls material amount of accrued rather than billed in the system to see that it calculated accrued revenue contractor revenue at each period end, including the correctly based on contracted hours and billing rates. year end. This is a system-computed amount calculated We also compared a sample of the timesheets by using standard contractor rates and estimated hours. submitted and/or billings raised subsequent to the year This is then reviewed by management, and adjusted end to the revenue that had been accrued in relation to reflect actual data when contractor timesheets are to them and found them to be consistent. received. Contractor revenues represented 67% of the We verified that accrued revenue was not older than Group’s gross profit during the year. three months in age in accordance with Group policy, We also focused on this area because of a particular and examined the ageing profile of the balance in characteristic of the Group’s accounting processes general, concluding that management were following whereby revenue is accrued for contractors where no their policies in this area. timesheet has been received but the individual is ‘live’ In addition, we tested a sample of manual journals on the group’s systems, or where a customer has not recorded within revenue to check that the system- yet approved a submitted timesheet. Such accruals are driven amounts were appropriately reflected in the removed after three months if no timesheet is received financial records. or customer approval obtained. For permanent revenue we obtained contracts for Revenue from permanent placements involves limited revenue recognised around year end, and agreed estimation and is recognised when the employee starts placement start dates to activity logs or confirmations their placement, so we carried out our normal audit from the customer. procedures in this area.
TRACKER SHARES Details of the tracker share scheme are set out in the We verified that SThree’s current policy for repurchasing Directors’ report and Note 1 of the financial statements. tracker shares continues to be through the issue of new Refer also to Note 19, Critical accounting estimates and SThree plc shares or use of treasury shares. We tested judgements (Note 1) and Audit Committee Report. repurchases of tracker shares during the year and verified that these were settled with SThree plc shares in Tracker shares can be repurchased from holders with accordance with this policy. either cash or SThree plc shares at the Company’s discretion. The Company’s policy is to settle these using We confirmed with management and the Board that SThree plc shares. Therefore this share based payment it remains their intention to settle in equity, and that this scheme was accounted for in the year as equity settled. policy is disclosed within the financial statements. There are significant accounting differences between an equity settled and a cash settled scheme. Therefore, with regard to the material quantum of amounts involved, we focused on this significant judgement.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC 89 GOVERNANCE
How We Tailored the and on the financial statements that, in our view, warranted Audit Scope as a whole. reporting for qualitative reasons. We tailored the scope of our Based on our professional audit to ensure that we performed Going Concern judgement, we determined enough work to be able to give an Under the Listing Rules we are materiality for the financial opinion on the financial statements required to review the directors’ statements as a whole as follows: as a whole, taking into account the statement, set out on page 79, in geographic structure of the Group, relation to going concern. We have Overall the accounting processes and £1.9 million nothing to report having performed Group (2015: £1.9 million). controls, and the industry in which materiality our review. the Group operates. 5% of profit before As noted in the directors’ The Group has a shared service How we tax (2015: 5% statement, the directors have centre in the UK which is determined of profit before concluded that it is appropriate to responsible for processing the it exceptional items prepare the financial statements transactions of the whole Group. and tax). using the going concern basis of Our audit was therefore conducted accounting. The going concern We believe that from the UK at the shared service basis presumes that the Group and profit before centre and addressed the whole parent company have adequate tax, adjusted for of the Group’s profit. exceptional items, resources to remain in operation, provides us with a and that the directors intend them This gave us the evidence we Rationale consistent year on to do so, for at least one year from needed for our opinion on the for year basis for the date the financial statements Group financial statements as benchmark determining were signed. As part of our audit a whole. applied materiality by we have concluded that the eliminating the directors’ use of the going concern Materiality non-recurring basis is appropriate. The scope of our audit is influenced disproportionate by our application of materiality. We impact of these However, because not all future set certain quantitative thresholds items. events or conditions can be for materiality. These, together with predicted, these statements are qualitative considerations, helped We agreed with the Audit not a guarantee as to the Group’s us to determine the scope of our Committee that we would report and parent company’s ability to audit and the nature, timing and to them misstatements identified continue as a going concern. extent of our audit procedures and during our audit above £0.2 million to evaluate the effect of (2015: £0.2 million) as well as misstatements, both individually misstatements below that amount
Other Required Reporting CONSISTENCY OF OTHER INFORMATION
Companies Act 2006 Opinion In our opinion:
• The information given in the consistent with the financial internal control and risk Strategic Report and the statements; and management systems and Directors’ Report for the financial about share capital structures • The information given in the year for which the financial is consistent with the financial Corporate Governance statements are prepared is statements. Statement with respect to
90 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC FINANCIAL STATEMENTS
ISAs (UK & Ireland) Reporting
Under ISAs (UK and Ireland) we are required to report to you if, in our opinion: • Information in the Annual Report is: We have no - Materially inconsistent with the information in the audited financial statements; or exceptions to report - Apparently materially incorrect based on, or materially inconsistent with, our knowledge arising from this of the group and parent company acquired in the course of performing our audit; or responsibility. - Otherwise misleading.
• The statement given by the directors on page 52, in accordance with provision C.1.1 of the We have no UK Corporate Governance Code (‘the Code’), that they consider the Annual Report taken exceptions to report as a whole to be fair, balanced and understandable and provides the information arising from this necessary for members to assess the group’s and parent company’s performance, responsibility. business model and strategy is materially inconsistent with our knowledge of the group and parent company acquired in the course of performing our audit.
• The section of the Annual Report on page 81, as required by provision C.3.8 of the Code, We have no Describing the work of the Audit Committee does not appropriately address matters exceptions to report communicated by us to the Audit Committee. arising from this responsibility
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group
Under ISAs (UK and Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: • The directors’ confirmation in the Annual Report that they have carried out a robust We have nothing assessment of the principal risks facing the group, including those that would threaten its material to add or to business model, future performance, solvency or liquidity. draw attention to.
• The disclosures in the Annual Report that describe those risks and explain how they are We have nothing being managed or mitigated. material to add or to draw attention to.
• The directors’ explanation in the Annual Report as to how they have assessed the prospects We have nothing of the group, over what period they have done so and why they consider that period to be material to add or to appropriate, and their statement as to whether they have a reasonable expectation that draw attention to. the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing the group and the directors’ statements in relation to the longer-term viability of the group, set out on page 79. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Adequacy of Accounting • We have not received all the adequate for our audit have not Records and Information and information and explanations we been received from branches Explanations Received require for our audit; or not visited by us; or Under the Companies Act 2006 we • Adequate accounting records • The parent company financial are required to report to you if, in have not been kept by the statements and the part of the our opinion: parent company, or returns Directors’ Remuneration
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC 91 GOVERNANCE
Report to be audited are not in Other Companies Act 2006 governance statement has not agreement with the accounting Reporting been prepared by the parent records and returns. Under the Companies Act 2006 we company. We have no exceptions • We have no exceptions to report are required to report to you if, in to report arising from this arising from this responsibility. our opinion, certain disclosures of responsibility. directors’ remuneration specified Under the Listing Rules we are by law are not made. We have no DIRECTORS’ REMUNERATION required to review the part of the Directors’ Remuneration Report – exceptions to report arising from Corporate Governance Statement Companies Act 2006 Opinion this responsibility. relating to the parent company’s In our opinion, the part of the compliance with ten provisions of Directors’ Remuneration Report Corporate Governance Statement the UK Corporate Governance to be audited has been properly Under the Companies Act 2006 we Code. We have nothing to report prepared in accordance with the are required to report to you if, in having performed our review. Companies Act 2006. our opinion, a corporate
Responsibilities for the Financial Statements and the Audit Our Responsibilities and What an Audit of Financial reasonable basis for us to draw Those of the Directors Statements Involves conclusions. We obtain audit As explained more fully in the An audit involves obtaining evidence through testing the Statement of Directors’ evidence about the amounts and effectiveness of controls, Responsibilities set out on pages 51 disclosures in the financial substantive procedures or to 52, the directors are responsible statements sufficient to give a combination of both. for the preparation of the financial reasonable assurance that the In addition, we read all the statements and for being satisfied financial statements are free from financial and non-financial that they give a true and fair view. material misstatement, whether information in the Annual Report caused by fraud or error. This to identify material inconsistencies Our responsibility is to audit and includes an assessment of: express an opinion on the financial with the audited financial • Whether the accounting policies statements in accordance with statements and to identify any are appropriate to the group’s applicable law and ISAs (UK and information that is apparently and the parent company’s Ireland). Those standards require materially incorrect based on, or circumstances and have been us to comply with the Auditing materially inconsistent with, the consistently applied and Practices Board’s Ethical Standards knowledge acquired by us in the adequately disclosed; for Auditors. course of performing the audit. If • The reasonableness of significant we become aware of any This report, including the opinions, accounting estimates made by apparent material misstatements has been prepared for and only the directors; and or inconsistencies we consider the for the company’s members as a • The overall presentation of the implications for our report. body in accordance with Chapter financial statements. 3 of Part 16 of the Companies Act 2006 and for no other purpose. We We primarily focus our work in these do not, in giving these opinions, areas by assessing the directors’ judgements against available accept or assume responsibility for CHRISTOPHER BURNS evidence, forming our own any other purpose or to any other (Senior Statutory Auditor) person to whom this report is shown judgements, and evaluating the for and on behalf of or into whose hands it may come disclosures in the financial PricewaterhouseCoopers LLP save where expressly agreed by statements. Chartered Accountants and our prior consent in writing. We test and examine information, Statutory Auditors using sampling and other auditing London techniques, to the extent we 20 January 2017 consider necessary to provide a
92 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF STHREE PLC FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SThree plc FINANCIAL STATEMENTS 93 CONSOLIDATED INCOME STATEMENT For the year ended 30 November 2016
30 November 30 November 2016 2015 Before exceptional Exceptional Items items Total Note £’000 £’000 £’000 £’000 Continuing operations Revenue 2 959,861 848,841 - 848,841 Cost of sales (701,180) (613,123) - (613,123) Gross profit 2 258,681 235,718 - 235,718 Administrative expenses (220,913) (197,316) - (197,316) Gain on disposal of subsidiaries 3 - - 377 377 Operating profit 4 37,768 38,402 377 38,779 Finance income 6 79 64 - 64 Finance costs 6 (549) (751) - (751) Profit before taxation 37,298 37,715 377 38,092 Taxation 7 (10,056) (11,350) (77) (11,427) Profit for the year attributable 27,242 26,365 300 26,665 to owners of the Company
Earnings per share 9 pence pence pence pence Basic 21.2 20.8 0.2 21.0 Diluted 20.6 19.9 0.2 20.1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 November 2016
30 November 30 November 2016 2015 £’000 £’000 Profit for the year 27,242 26,665 Other comprehensive income/(loss): Items that may be subsequently reclassified to profit or loss: Exchange differences on retranslation of foreign operations 10,774 (4,194) Other comprehensive income/(loss) for the year (net of tax) 10,774 (4,194) Total comprehensive income for the year attributable to owners of the 38,016 22,471 Company
The accompanying notes are an integral part of these financial statements.
94 FINANCIAL STATEMENTS SThree plc STATEMENTS OF FINANCIAL POSITION As at 30 November 2016
CONSOLIDATED COMPANY 30 November 30 November 30 November 30 November 2016 2015 2016 2015 *RESTATED *RESTATED Note £’000 £’000 £’000 £’000 ASSETS Non-current assets Property, plant and equipment 10 7,100 5,599 - - Intangible assets 11 11,597 11,108 - - Investments 12 727 - 290,233 323,551 Deferred tax assets 18 2,501 1,780 229 353 21,925 18,487 290,462 323,904 Current assets Trade and other receivables 13 189,169 157,153 1,507 1,679 Current tax assets 4,650 3,292 10,423 10,071 Cash and cash equivalents 14 15,707 25,966 394 908 209,526 186,411 12,324 12,658 Total assets 231,451 204,898 302,786 336,562 EQUITY AND LIABILITIES Equity attributable to owners of the Company Share capital 19 1,312 1,295 1,312 1,295 Share premium 27,406 23,140 27,406 23,140 Other reserves (5,381) (11,030) (5,397) (272) Retained earnings 52,333 46,001 267,294 302,227 Total equity 75,670 59,406 290,615 326,390
Non-current liabilities Provisions for liabilities and charges 17 907 1,133 - -
Current liabilities Bank overdraft 14 5,685 19,807 - 32 Provisions for liabilities and charges 17 4,953 5,579 - - Trade and other payables 15 138,859 117,039 12,171 10,140 Current tax liabilities 5,377 1,934 - - 154,874 144,359 12,171 10,172 Total liabilities 155,781 145,492 12,171 10,172 Total equity and liabilities 231,451 204,898 302,786 336,562
*An explanation of the restatement is provided in note 1 under basis of preparation.
The accompanying notes are an integral part of these financial statements.
These financial statements were approved by the Board of Directors and authorised for issue on 20 January 2017. They were signed on its behalf by:
Alex Smith Chief Financial Officer Company registered number: 03805979
SThree plc FINANCIAL STATEMENTS 95 96
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 November 2016
Capital Currency Total equity attributable Share Share redemption Capital Treasury translation Retained to owners of the capital premium reserve reserve reserve reserve earnings Company Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 30 November 2014 1,266 14,470 168 878 (162) (6.564) 41,290 51,346 Profit for the year ended 30 November 2015 ------26,665 26,665 Other comprehensive loss for the year - - - - - (4,194) - (4,194) Total comprehensive income for the year - - - - - (4,194) 26,665 22,471 Dividends paid to equity holders 8 ------(17,671) (17,671) Distributions to tracker shareholders ------(164) (164) Issue of new shares for settlement of vested tracker shares 19(a) 22 8,206 - - - - (8,306) (78) Settlement of share-based payments 7 464 - - 56 - 71 598 Purchase of own shares 19(a) - - - - (1,212) - - (1,212) Credit to equity for equity-settled share-based payments 19(b) ------4,133 4 ,133 Current and deferred tax on share-based payment 7 ------(17) (17) transactions Total movements in equity 29 8,670 - - (1,156) (4,194) 4,711 8,060 Balance at 30 November 2015 1,295 23,140 168 878 (1,318) (10,758) 46,001 59,406 Profit for the year ended 30 November 2016 ------27,242 27,242 Other comprehensive income for the year - - - - - 10,774 - 10,774 Total comprehensive income for the year - - - - - 10,774 27,242 38,016 Dividends paid to equity holders 8 ------(17,972) (17,972) Distributions to tracker shareholders ------(149) (149) Issue of new shares for settlement of vested tracker shares 19(a) 14 3,706 - - - - (3,929) (209) Settlement of share-based payments 3 560 - - 1 ,720 - (1,671) 612 Purchase of own shares 19(a) - - - - (6,845) - - (6,845) Credit to equity for equity-settled share-based payments 19(b) ------2,823 2,823 Current and deferred tax on share-based payment 7 ------(12) (12) transactions Total movements in equity 17 4,266 - - (5,125) 10,774 6,332 16,264 SThree plc Balance at 30 November 2016 1,312 27,406 168 878 (6,443) 16 52,333 75,670
The accompanying notes are an integral part of these financial statements. SThree plc COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 30 November 2016
Total equity Capital attributable to Share Share redemption Capital Treasury Retained owners of the capital premium reserve reserve reserve earnings Company Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 30 November 2014 1,266 14,470 168 878 (162) 286,503 303,123 Total comprehensive income for the year ended 30 November 2015 1 - - - - - 29,210 29,210 Dividends paid to equity holders 8 - - - - - (17,671) (17,671) Issue of new shares for settlement of vested tracker shares 19(a) 22 8,206 - - - - 8,228 Settlement of share-based payments 7 464 - - 56 71 598 Purchase of own shares 19(a) - - - - (1,212) - (1,212) Credit to equity for equity-settled share-based payments - - - - - 4,133 4,133 Current and deferred tax on share-based payment transactions - - - - - (19) (19) Total movements in equity 29 8,670 - - (1,156) 15,724 23,267 Balance at 30 November 2015 1,295 23,140 168 878 (1,318) 302,227 326,390 Total comprehensive loss for the year ended 30 November 2016 1 - - - - - (18,002) (18,002) Dividends paid to equity holders 8 - - - - - (17,972) (17,972) Issue of new shares for settlement of vested tracker shares 19(a) 14 3,706 - - - - 3,720 Settlement of share-based payments 3 560 - - 1,720 (1,671) 612 Purchase of own shares 19(a) - - - - (6,845) - (6,845) Credit to equity for equity-settled share-based payments - - - - - 2,723 2,723 Current and deferred tax on share-based payment transactions - - - - - (11) (11) Total movements in equity 17 4,266 - - (5,125) (34,933) (35,775) Balance at 30 November 2016 1,312 27,406 168 878 (6,443) 267,294 290,615
Of the above reserves, retained earnings of £267,294,000 (2015: £302,227,000) are distributable. FINANCIAL STATEMENTS The accompanying notes are an integral part of these financial statements. 97 STATEMENTS OF CASH FLOW For the year ended 30 November 2016
CONSOLIDATED COMPANY 30 November 30 November 30 November 30 November 2016 2015 2016 2015
Note £’000 £’000 £’000 £’000
Cash flows from operating activities
Profit before taxation after exceptional items 37,298 38,092 (18,896) 28,656
Adjustments for:
Depreciation and amortisation charge 10,11 5,716 5,091 - -
Accelerated amortisation and impairment of intangible assets 11 - 1,471 - -
Finance income 6 (79) (64) (76) (31)
Finance cost 6 549 751 543 760
Loss on disposal of property, plant and equipment 4 194 38 - -
Impairment of investments in subsidiaries 12 - - 40,077 -
Gain on disposal of subsidiaries 3 - (377) - (377)
Non-cash charge for share-based payments 19(b) 2 ,823 4,134 811 1,137
Operating cash flows before changes in working capital and provisions 46,501 49,136 22,459 30,145
Increase/(decrease) in receivables (9,404) 3,608 172 614
Increase in payables 5,731 9,395 903 4,067
Decrease in provisions (632) (4,876) - (705)
Cash generated from operations 42,196 57,263 23,534 34,121
Finance income 6 79 64 76 31
Income tax paid - net (8,477) (10,841) 656 (3,606)
Net cash generated from operating activities 33,798 46,486 24,266 30,546
Cash generated from operating activities before exceptional items 34,658 49,475 24,469 30,976
Cash outflow from previously recognised exceptional items (860) (2,989) (203) (430)
Net cash generated from operating activities 33,798 46,486 24,266 30,546
Cash flows from investing activities
Purchase of property, plant and equipment 10 (3,220) (3,563) - -
Purchase of intangible assets 11 (3,973) (5,060) - -
Proceeds from disposal of subsidiaries 3 - 2,002 - 2,002
Investment in a related party (727) - - -
Investment in a subsidiaries - - - (42)
Net cash (used in)/generated from investing activities (7,920) (6,621) - 1,960
Cash flows from financing activities
Finance cost 6 (549) (751) (543) (760)
Employee subscription for tracker shares 192 156 - -
Proceeds from exercise of share options 612 598 612 598
Purchase of own shares (6,845) (1,111) (6,845) (1,111)
Repayment of borrowings - (24,000) - (24,000)
Dividends paid to equity holders 8 (17,972) (17,671) (17,972) (17,671)
Distributions to tracker shareholders (130) (131) - -
Net cash used in from financing activities (24,692) (42,910) (24,748) (42,944)
Net increase/(decrease) in cash and cash equivalents 1,186 (3,045) (482) (10,438)
Cash and cash equivalents at beginning of the year 6,159 14,071 876 11,314
Effect of exchange rate changes 2,677 (4,867) - -
Cash and cash equivalents at end of the year 14 10,022 6,159 394 876
The accompanying notes are an integral part of these financial statements.
98 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES
SThree plc (‘the Company’) and its Companies Act 2006 not to these standards and interpretations subsidiaries (together ‘the Group’) present an income statement in the preparation of these operate predominantly in the and statement of comprehensive financial statements. United Kingdom & Ireland, income for the parent Company IFRS 9 ‘Financial instruments’ Continental Europe, the USA and alone. The loss after tax for the IFRS 15 ‘Revenue from Contracts Asia Pacific & Middle East. The parent Company for the year was with Customers’ Group consists of different brands £18.0m (2015: profit of £29.2m). IFRS 16 ‘Leases’ and provides both Permanent and Revision of disclosure Contract specialist staffing services, Following an agenda decision by The Group expects that IFRS 16 primarily in the ICT, Banking & the IFRS IC in March 2016 regarding will have a material effect on the Finance, Energy, Engineering and offsetting and cash pool results and net assets of the Group. Life Sciences sectors. The Group’s arrangements, the Group and IFRS 15 will impact the Group’s 30 activities and business are set out in the Company have revised the November 2018 year end with the Directors’ Report. disclosure of their cash pooling retrospective impact. The impact on the Group’s financial The Company is a public limited arrangements in the comparative statements of the future adoption company listed on the London statements of financial position at of this and other new standards, Stock Exchange and incorporated 30 November 2015 (and 30 interpretations and amendments and domiciled in the United November 2014). This revision has is under review. Kingdom and registered in England had the effect of increasing each and Wales. Its registered office is of cash and cash equivalents and GOING CONCERN 8th Floor, City Place House, 55 bank overdraft at 30 November The Group’s business activities, Basinghall Street, London, 2015 by £19.8m for the Group and together with the factors likely EC2V 5DX. by £32,000 for the Company – note 14 (at 30 November 2014 by to affect its future development, The Group’s principal accounting £35.5m each for the Group and performance, its financial position, policies, as set out below, have £nil for the Company). Similarly, cash flows, liquidity position and been consistently applied in the resulting total current assets, total borrowing facilities are described in preparation of these financial assets, total current liabilities and the strategic section of the Annual statements of all the periods total liabilities for the Group and Report. In addition, note 23 to these presented, unless otherwise stated. the Company at these dates have financial statements includes each been restated by these details of the Group’s treasury BASIS OF PREPARATION amounts. There is no change to net activities, funding arrangements These financial statements have assets or the results or cash flows for and objectives, policies and been prepared in accordance the Group and the Company for procedures for managing various with International Financial the year ended 30 November 2015 risks including liquidity, capital Reporting Standards (‘IFRSs’) and and 30 November 2014. management and credit risks. IFRS Interpretations Committee The Directors have considered the (‘IFRS IC’) as adopted and ADOPTION OF NEW AND Group’s forecasts, including taking endorsed by the European Union REVISED STANDARDS account of reasonably possible (‘EU’) and with those parts of the Except as set out above, there changes in trading performance, Companies Act 2006 applicable were no new IFRSs or IFRIC and the Group’s available banking to companies reporting under interpretations that had to be facilities. Based on this review and IFRS. Therefore the Group financial implemented during the year that after making enquiries, the Directors statements comply with Article 4 significantly affect these financial have a reasonable expectation of the EU International Accounting statements. that the Group and the Company Standards Regulation. have adequate resources to As at the date of authorisation of continue in operational existence The consolidated and Company these financial statements, the for the foreseeable future. For this only financial statements have following key standards and reason, the Directors continue to been prepared under the historical amendments were in issue but not adopt a going concern basis in cost convention. The Company yet effective (and in some cases preparing these financial has elected to take the exemption had not yet been endorsed by the statements. under Section 408 of the EU). The Group has not applied
SThree plc FINANCIAL STATEMENTS 99 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued)
BASIS OF CONSOLIDATION worked by a contractor, is LEASES The consolidated financial recognised when the service has Leases where substantially all the statements incorporate the been provided. Revenue earned risks and rewards of ownership of financial statements of the but not invoiced at year end is assets remain with the lessor are Company and all its subsidiaries. accrued and included in ‘Accrued accounted for as operating leases. income’. Payments made under operating Subsidiaries are all entities over leases net of any incentives which the Company has the power Revenue from Permanent received from the lessor are to govern the financial and placements is typically based on charged to the income statement operating policies, generally a percentage of the candidate’s on a straight-line basis over the accompanying a shareholding remuneration package and is lease periods. of more than one half of the recognised when candidates voting rights. Subsidiaries are fully commence employment. FINANCE INCOME consolidated from the date on Revenue from retained assignments Interest income is recognised as which control is transferred to the is recognised on completion of the interest accrues to the net Group. They are de-consolidated certain pre-agreed stages of the carrying amount of the financial from the date on which control service. Fees received for the asset. ceases. Uniform accounting service are non-refundable. policies are adopted across the A provision is established for Group. All intra-group transactions, TAXATION non-fulfilment of Permanent balances, income and expenses The tax expense comprises both placement and Contract are eliminated on consolidation. current and deferred tax. obligations, which is offset within
When the Group disposes of a trade and other receivables on the Current tax The tax currently payable is based subsidiary, the gain or loss on face of the statement of financial on taxable profit for the year. disposal represents (i) the position and offset against Taxable profit differs from profit aggregate of the fair value of revenue in the consolidated before taxation as reported in the the consideration received or income statement. receivable, (ii) the carrying amount income statement because it of the subsidiary’s net assets excludes items of income or COST OF SALES (including goodwill) at the date expense that are taxable or Cost of sales consists of the of disposal and (iii) any directly deductible in other years and it contractors cost of supplying attributable disposal costs. Amounts further excludes items that are services and any directly previously recognised in other never taxable or deductible. The attributable costs to them. comprehensive income in relation Group’s liability for current tax is to the subsidiary are removed calculated using tax rates that GROSS PROFIT from equity and recognised in the have been enacted or Gross profit represents revenue less income statement as part of the substantively enacted by cost of sales and consists of the gain or loss on disposal. the reporting date. total placement fees of Permanent candidates and the margin Deferred tax REVENUE AND REVENUE earned on the placement of Deferred tax is provided in full, using RECOGNITION contractors. the liability method, on temporary Revenue comprises the fair value differences arising between the of the consideration received or EXCEPTIONAL ITEMS tax bases of assets and liabilities receivable for the provision of Exceptional items including gain and their carrying amounts in the services provided in the ordinary on disposal of subsidiaries, as consolidated financial statements. course of the Group’s activities. disclosed on the face of the Deferred tax is calculated using tax Revenue is shown net of value income statement, are items which rates that have been enacted or added tax and other sales- due to their size and non-recurring substantively enacted by the related taxes, returns, rebates and nature are classified separately in reporting date and are expected discounts and after elimination of order to draw them to the to apply when the related sales within the Group. attention of the reader of the deferred tax asset is realised or the Contract revenue for the supply of financial statements and to show deferred tax liability is settled. professional services, which is mainly the underlying profits of the Group. based on the number of hours
100 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued)
Deferred tax assets are recognised • income and expenses for each following rates: only to the extent that it is probable income statement are Computer equipment that future taxable profits will be translated using the average 33.33% per annum available against which to offset rates of exchange for the year Leasehold improvements the deductable temporary (unless this average is not a lower of 20% per annum differences. reasonable approximation of the and lease period cumulative effect of the rates Fixtures and fittings FOREIGN CURRENCIES prevailing on the transaction 20% per annum dates, in which case income and Functional and presentation expenses are translated at the Assets’ residual values and useful currency lives are reviewed and adjusted, Items included in the financial dates of the transactions); and if appropriate, at the end of the statements of each of the Group’s • all resulting exchange differences reporting period. subsidiaries are measured using the are recognised in the currency of the primary economic consolidated statement of Subsequent costs are included environment in which that comprehensive income. in the asset’s carrying amount or subsidiary operates (its ‘functional The Group treats specific inter- recognised as a separate asset, as currency’). The consolidated company loan balances, which appropriate, only when it is financial statements are presented are not intended to be settled for probable that future economic in Sterling, which is the Company’s the foreseeable future, as part of benefits associated with the item functional and presentation its net investment in the relevant will flow to the Group and the cost currency for the consolidated subsidiaries. On consolidation, of the item can be measured financial statements. exchange differences arising from reliably. All other repairs and the translation of the net investment maintenance are charged to the Transactions and balances income statement during the Foreign currency transactions are in foreign entities and of borrowings period in which they are incurred. translated into the functional and other currency instruments currency using the exchange rates designated as hedges of such Gains and losses on disposals prevailing at the dates of the investments, are recognised as a are determined by comparing transactions. Foreign exchange separate component of equity proceeds with carrying amounts. gains and losses resulting from the and are included in the Group’s These are included in the income settlement of such transactions currency translation reserve (‘CTR’). statement. An asset’s carrying and from the translation at When a foreign operation is sold, amount is written down period-end exchange rates of such exchange differences are immediately to its recoverable monetary assets and liabilities removed from CTR and are amount if the asset’s carrying denominated in foreign currencies included in the calculation value is greater than its estimated are recognised in the income of gain or loss on disposal. recoverable amount. statement. PROPERTY, PLANT AND INTANGIBLE ASSETS Consolidation EQUIPMENT Goodwill The results and financial position of Property, plant and equipment Goodwill arising on consolidation all of the Group’s subsidiaries is stated at historical cost, net of represents the excess of purchase (none of which have the accumulated depreciation and consideration over the fair value of currency of a hyper- inflationary any provision for impairment. the Group’s share of the identifiable economy) that have a Historical cost includes expenditure net assets of the acquired subsidiary functional currency different from that is directly attributable to the at the date of acquisition. Goodwill the Group’s presentation currency acquisition of the assets. are translated into the presentation on the acquisition of subsidiaries currency as follows: Depreciation is calculated has indefinite useful life and is using the straight-line method to included in intangible assets. • assets and liabilities for each allocate the depreciable value of Goodwill arising on the acquisition statement of financial position property, plant and equipment to of associates is included within the presented are translated at the the income statement over their carrying value of the investment. rates ruling at the end of the useful economic lives after they Goodwill is tested annually for reporting period; have been brought into use at the impairment and carried at cost less
SThree plc FINANCIAL STATEMENTS 101 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued)
accumulated impairment losses. from the date the system is at the lowest levels for which there Any impairment is recognised available for use over their are separately identifiable cash immediately in the income expected useful lives (not flows (cash-generating units). statement and is not subsequently exceeding five years). reversed. On disposal of a Other costs linked to development INVESTMENTS subsidiary or associate, the The Company’s investments in projects that do not meet the attributable amount of goodwill is shares in subsidiary companies above criteria such as data included in the determination of are stated at cost less provision population, research expenditure the profit or loss on disposal. for impairment. Any impairment and staff training costs are is charged to the Company’s Computer software recognised as an expense income statement as it arises. The cost of acquired computer as incurred. software licenses is capitalised. The The investments in shares in the Trademarks cost includes the expenditure that undertakings outside of the Group Trademarks are initially recognised is directly attributable to the are considered to be available- at cost. They have a definite useful acquisition of the software. The for-sale financial investments. Since life and are carried at cost less costs are amortised over their they are investments in unlisted accumulated amortisation. estimated useful lives of three to companies where fair value Amortisation is calculated using seven years. cannot be readily determined, the straight-line method to allocate they are initially recognised at cost Costs associated with maintaining the cost of trademarks over their with subsequent measurement at computer software are recognised estimated useful lives (up to cost less provision for impairment. as an expense as they are incurred. twelve years). Where share-based payments are Assets under construction granted to the employees of Purchased assets or internally IMPAIRMENT OF ASSETS Assets that are not subject to subsidiary undertakings by the generated intangible assets that amortisation are tested annually for parent company, they are treated are still under development are impairment. Any impairment loss is as a capital contribution to the classified as ‘assets under recognised in the income subsidiary and the Company’s construction’. These assets are statement for the amount by investment in the subsidiary is reclassified within intangibles over which the asset’s carrying amount increased accordingly. the phased completion dates and exceeds its recoverable amount. are amortised from the date they FINANCIAL INSTRUMENTS are reclassified. Assets that are subject to Financial assets and liabilities are amortisation are reviewed for Software and system recognised in the Group’s impairment whenever events or development costs statement of financial position changes in circumstances Costs incurred on development when the Group becomes a party indicate that their respective projects (relating to the introduction to the contractual provisions of carrying amounts may not be or design of new systems or the instrument. recoverable. An impairment loss is improvement of the existing recognised in the income systems) are only capitalised as statement for the amount by FINANCIAL ASSETS intangible assets if capitalisation Non-derivative financial assets are which the asset’s carrying amount criteria under IAS 38 ‘Intangible classified as either ‘held to maturity’ exceeds its recoverable amount, Assets’ are met, i.e. where the or ‘loans and receivables’. The by analysing individual assets or related expenditure is separately classification depends on the classes of assets that naturally identifiable, the costs are nature and purpose of the belong together. The recoverable measurable and management is financial assets and is determined amount represents the higher of satisfied as to the ultimate technical at the time of initial recognition. an asset’s fair value less costs to sell and commercial viability of the and its value in use. Value in use is Held to maturity financial assets project such that it will generate measured based on the expected Held-to-maturity financial assets future economic benefits based future discounted cash flows (‘DCF’ comprise investments with fixed on all relevant available model) attributable to the asset. or determinable payments and information. Capitalised For the purposes of assessing fixed maturity for which there is development costs are amortised impairment, the assets are grouped a positive intention and ability to
102 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued) hold to maturity and which have and bank overdrafts. Bank recognised for future not been designated at fair value overdrafts are shown within current operating losses. through the income statement or liabilities on the statement of Where there are a number of as available for sale. financial position unless they form similar obligations, the likelihood part of a cash pooling Held-to-maturity financial assets that an outflow will be required arrangement where there is an are measured at amortised cost in settlement is determined by intention to settle on a net basis, in using the effective interest method. considering the class of obligation which case they are reported net as a whole. A provision may be Loans and receivables of related cash balances. recognised even if the likelihood of Loans and receivables are non- an outflow with respect to any one derivative financial assets with FINANCIAL LIABILITIES AND item included in the same class of fixed or determinable payments OVERDRAFTS obligations may be small. that are not quoted in an active All non-derivative financial liabilities market. They are included in are classified as ‘other financial SHARE CAPITAL current assets, except for maturities liabilities’ and are initially measured Ordinary shares are classified as greater than twelve months after at fair value, net of transaction equity. Incremental costs directly the end of the reporting period. costs incurred. Other financial attributable to the issue of new These are classified as non-current liabilities are subsequently measured shares or options are shown in assets. The Group’s loans and at amortised cost using the equity as a deduction, net of tax, receivables comprise ‘trade and ‘effective interest rate’ method. from the proceeds. other receivables’ and ‘cash and Financial liabilities are classified as The Group’s holding in its own cash equivalents’ in the statement current liabilities unless the Group equity instruments are classified as of financial position. has an unconditional right to defer ‘treasury shares’. The consideration Trade and other receivables settlement for at least twelve paid, including any directly Trade receivables are recorded months after the end of the attributable incremental costs initially at fair value and thereafter reporting period. is deducted from the equity at net realisable value after Trade and other payables attributable to the owners of the deducting an allowance for Trade and other payables are Company until the shares are doubtful accounts. The Group recognised initially at fair value cancelled or reissued. No gain or makes judgements on an entity by and subsequently measured at loss is recognised in the income entity basis as to its ability to collect amortised cost using the effective statement on the purchase, sale, outstanding receivables and interest method. issue or cancellation of equity provides an allowance for doubtful Other financial liabilities shares. accounts based on a specific Other financial liabilities, including review of significant outstanding borrowings and overdraft, are EMPLOYEE BENEFIT TRUST invoices. For those invoices not initially measured at fair value, net of The Employee Benefit Trust (‘EBT’) specifically reviewed, provisions are transaction costs and subsequently was originally funded by gifts from provided at differing percentages held at amortised cost. certain of the Company’s based on the age of the shareholders and Directors. The receivable. In determining these PROVISIONS assets and liabilities of the EBT are percentages, the Group analyses Provisions are recognised when consolidated into the Group’s its historical collection experience the Group has a present legal or consolidated financial statements. and current economic trends. constructive obligation as a result Trade receivable balances are The shares in the EBT are held to of a past event for which, it is more written off when the Group satisfy awards and grants under likely than not that an outflow of determines that it is unlikely that certain employee share schemes. resources will be required to settle future remittances will be received. The shares currently held in the EBT the obligation and the amount are a mix of gifted, newly issued or Cash and cash equivalents can be reliably estimated. market purchased shares. No cost Cash and cash equivalents include Provisions are recognised as the is attributed to these shares, hence, cash in hand, deposits held on call present value of the expenditures no amounts are shown in these with banks, other short-term highly expected to be required to settle financial statements. liquid investments with original the obligation. No provision is maturities of three months or less
SThree plc FINANCIAL STATEMENTS 103 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued)
DIVIDENDS withdrawal, or providing Where an equity-settled award is Interim dividends are recognised termination benefits as a result cancelled, it is treated as if it had in the financial statements at the of an offer made to encourage vested on the date of cancellation time they are paid. Final dividends voluntary redundancy. and any cost not yet recognised declared to the Company’s in the income statement for the shareholders are recognised as SHARE-BASED PAYMENTS award is expensed immediately. a liability in the Company’s and The Group operates a number Any compensation paid, up to Group’s financial statements in the of equity-settled share-based the fair value of the award, at the period in which they are approved arrangements, under which it cancellation or settlement date is by the Company’s shareholders. receives services from employees deducted from equity, with any excess over fair value being The Company recognises in return for equity instruments of treated as an expense in the dividends from subsidiaries at the the Group. The cost of equity-settled consolidated income statement. time that they are declared. transactions with employees is measured by reference to the fair value at the date at which equity Tracker share arrangements EMPLOYEE BENEFITS instruments are granted and is Wages, salaries, bonuses, social (formerly ‘Minority Interest/MI’) recognised as an expense over the The Group invites selected senior security contributions, paid annual vesting period, which ends on the individuals to invest in the businesses leave or sick leave and any other date on which relevant employees they manage, sharing in both the employee benefits are accrued in become fully entitled to any risk and reward. These individuals the period in which the associated award. Fair value is determined are offered equity (‘tracker shares’) services are rendered by by using an appropriate valuation in those businesses in return for employees to the Group. model. In valuing equity-settled making an investment. The amount Pension obligations – the Group transactions, no account is taken of equity offered varies in different has defined contribution plans of any vesting conditions, other circumstances but is never over and pays contributions to privately than market conditions. 25% of the overall equity of the administered pension plans on a No expense is recognised for business in question. The equity mandatory, contractual or voluntary awards that do not ultimately vest, stake tracks the performance of basis. The Group has no further except for awards where vesting the underlying business and the payment obligations once is conditional upon a market individuals receive dividends (if contributions have been paid. condition, which are treated as declared) by the ‘tracked’ business. Bonus plans – the Group recognises vesting irrespective of whether or If an individual remains a holder of a liability and an expense for not the market condition is satisfied, the tracker shares for a pre-agreed bonuses based on the Directors’ provided that all other performance period, typically 3 to 5 years best estimate of amounts due. The conditions are met. depending on the vesting period Group also recognises a provision At the end of the reporting period, applied to the tracker shares, they where contractually obliged or the cumulative expense is may then offer their vested tracker where there is a past practice of calculated, representing the extent shares for sale to the Group, but payments that has created a to which the vesting period has there is no obligation on the Group constructive obligation. expired and management’s best to settle the arrangement. SThree Termination benefits – termination estimate of the achievement or will undertake a formal due benefits are payable once otherwise of non-market conditions diligence process to establish employment is terminated before and the number of equity whether there is a sound business an agreed retirement date, or instruments that will ultimately vest case for settling a tracker share whenever an employee accepts or, in the case of an instrument and make an arm’s length voluntary redundancy in exchange subject to a market condition, it judgement. Should the Group for those benefits. The Group is treated as vesting as described decide to settle the tracker shares, recognises termination benefits above. The movement in it will do so at a price, which is when it is demonstrably committed cumulative expense since the determined using a formula to either terminating the previous year-end is recognised stipulated in the tracker share employment of employees in the income statement, with a Articles of Association (‘Articles’). according to a detailed formal corresponding entry in equity. SThree plc may settle in cash or in plan without the possibility of its shares, as it chooses. The Group
104 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued) policy is to settle in SThree plc Up until 2014 certain individuals period. Although these estimates shares. Consequently, the received loans from the Group to are based on the Directors’ best arrangements are deemed to be pay part of the initial subscription knowledge of the amounts, actual an equity-settled share-based for their tracker shares, on which results may ultimately differ from payment scheme under IFRS 2. interest is charged at or above the those estimates. The critical HMRC beneficial loan rate. These accounting judgements and Individuals must pay the fair value loans are repayable by the estimates made by the Directors in for the tracker shares at the time of individuals either at the time of these financial statements are set the initial subscription, as settlement of their tracker shares out below. determined by an independent via tracker share dividend or when third party valuer in accordance (i) Contract revenue is recognised they leave the Group. These loans with IFRS 2 ‘Share-based payments’ when the supply of professional are included within other and taking into account the services has been rendered. receivables (note 13). particular rights attached to the This includes an assessment of shares as described in the relevant When tracker shares are granted, professional services received businesses’ Articles. The initial no share-based payment charge is by the client for services valuation takes into consideration recognised in the income provided by contractors factors such as the size and trading statement on the basis that the between the date of the last record of the underlying business, initial subscription by the individual received timesheet and the expected dividends, future at the grant date equates to the year end. Revenue is therefore projections, as well as the external fair value at that date. Dividends accrued for contractors where market, sector and country declared by the tracked businesses, no timesheet has been characteristics. The external valuer which are factored into the grant received, but the individual is is supplied with detailed financial date fair value determination of ‘live’ on the Group’s systems, or information, including gross profit the tracker shares, are recorded where a customer has not yet and EBITDA of the relevant in equity as ‘distributions to tracker approved a submitted businesses. Using this information an shareholders’. timesheet. Such accruals are independent calculation of the removed after three months if When the Company issues new initial Equity Value (‘EV’) is prepared. no timesheet is received or shares to settle the tracker share This EV is then discounted to arrive customer approval obtained. arrangements, the nominal value at a valuation to take into account The amount of contractor of the shares is credited to share the relevant characteristics of revenue that is accrued rather capital and the difference the shareholding in the tracked than billed at each period end between the fair value of the business, for example the absence is significant. The value of tracker shares and the nominal of voting rights. The methodology unsubmitted timesheets for value is credited to share premium. for calculating the EV is applied each individual contractor is If the Company uses treasury consistently, although the data system generated and shares to settle the arrangements, used varies depending on the size judgements are applied the difference between the fair and history of the business. principally to the number of value of the tracker shares and the hours worked. The number of If an individual leaves the Group weighted average value of the hours worked is system before the pre-agreed period, they treasury shares is accounted for in generated based on the are entitled to receive the lower of the retained earnings. contractual hours and working the initial subscription amount they days for each contractor and contributed or the tracker share SIGNIFICANT ACCOUNTING adjusted for expected holidays fair value on the date of departure JUDGEMENTS AND ESTIMATES or other events that could as set out under the Articles. To The preparation of financial reduce the revenue. However, reflect this, a provision in relation to statements in conformity with IFRSs the revenue is adjusted to tracker shares is recognised at cost requires the use of estimates and reflect actual data from on initial subscription and held at assumptions that affect the contractor timesheets received cost and reflects the consideration reported amounts of assets and 2-3 weeks after the year end for tracker shares received from liabilities at the date of the financial and where timesheets are not individuals (note 17). statements and the reported submitted. The key judgement is amounts of revenues and the time period of three months expenses during the reporting
SThree plc FINANCIAL STATEMENTS 105 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
1. ACCOUNTING POLICIES (continued)
between accrual of a timesheet Company has taken legal (vi) The Company assesses its and the write off of this revenue advice which confirms this is investments in subsidiaries if a timesheet is not received judgemental and therefore the and other companies for and approved. Any difference approach taken by the impairment whenever events compared to the actual time Company is to include or changes in circumstances worked by the contractor differences between the fair indicate that the recoverable would result in the amount value of the tracker shares amount of the investment payable to the contractor and settled and the weighted could be less than the carrying accrued revenue receivable average cost of treasury shares value of the investment. If it from the client being adjusted in the retained earnings. There happens, the investment is in the next financial year. The are also certain judgements considered to be impaired judgement applied, and the involved in determining the fair and is written down to its assumptions underlying these value of the tracker shares at the recoverable amount. judgements are considered time of the initial subscription. Judgement is required in the appropriate and continue to The grant date fair valuation, determination of the recoverable be in line with IFRS requirements. which is performed by an amount as the Company (ii) The fair value of equity-settled independent third party valuer, evaluates various factors share-based payments is partly is based on information provided related to the operational derived from estimates of factors by management and their own and financial position of the such as lapse rates and analysis. The judgements relevant investee business. achievement of performance pertain to the forecast growth of (vii) Provisions are held in respect of criteria. It is also derived from the businesses, the operational a range of obligations such as assumptions such as the future and geographical risks relevant dilapidation and litigation volatility of the Company’s to those businesses and other provisions. These provisions share price, expected dividend similar areas. Most other involve significant management yields and risk-free interest rates. aspects of the tracker share judgement about the likely arrangements follow a rule (iii) The tracker share arrangements outcome of various events and based approach, e.g. vesting give the Group the choice to estimated future cash flows. period or settlement formula. settle tracker shares in either The amount recognised as a cash or SThree plc shares. There (iv) Judgement is required in the provision is the best estimate of is therefore a judgement determination of the costs that the consideration required to required as to whether this is a satisfy the IAS 38 criteria for settle the present obligation. cash or equity settled share- capitalisation as intangible (viii) The Group recognised a based payment scheme. assets. Judgement is also deferred tax asset of £0.9m Based on the Directors’ required for estimation of useful (2015: £nil) in respect of trading judgement, the tracker share economic lives of those losses of £2.9m that are to be arrangements are accounted intangible assets and assessment carried forward and relieved for as an equity-settled share- of their recoverability to against profits arising from based payment scheme under evaluate if there are any relevant subsidiary undertakings IFRS 2 as the Group’s policy is indicators of impairment. in future periods. No deferred to settle its obligations under (v) The provision for impairment of tax asset was recognised in the arrangements in SThree plc trade receivables requires respect of the remaining shares. As described in the significant judgement as the £26.4m (2015: £27.3m) losses. accounting policy, the Company Group evaluates, amongst The judgement to recognise settles tracker shares through other factors, the duration and the deferred tax asset is either treasury shares or the extent to which the carrying dependent upon the Group’s issue of new shares in SThree value of a receivable is less expectations regarding future plc. The Companies Act 2006 than its cost, the risk profile of profitability based upon the does not specify whether the a customer and other credit relevant subsidiaries’ historical issue of treasury shares to settle rating factors, such as financial performance and profitability share-based payments should health, historical experience of forecast for future years, which be accounted for in share and near-term business outlook contain a degree of inherent premium or elsewhere. The for a customer uncertainty.
106 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
2. SEGMENTAL ANALYSIS
IFRS 8 ‘Segmental Reporting’ be the Group Management Board Group segments the business into requires operating segments to be (‘GMB’) made up of the Chief four regions: the United Kingdom identified on the basis of internal Executive Officer, the Chief Financial & Ireland (‘UK&I’), Continental results about components of the Officer, the Chief Operating Officer, Europe, the USA and Asia Pacific Group that are regularly reviewed the Chief People Officer and the & Middle East (‘APAC & ME’). by the entity’s chief operating Regional CEOs and MDs, with other The Group’s management reporting decision maker to make strategic senior management attending and controlling systems use decisions and assess segment via invitation. Operating segments accounting policies that are the performance. have been identified based on same as those described in note reports reviewed by the GMB, which Management has determined the 1 in the summary of significant consider the business primarily from chief operating decision maker to accounting policies. a geographical perspective. The
REVENUE AND GROSS PROFIT BY REPORTABLE SEGMENT The Group measures the management reporting and Intersegment revenue is performance of its operating controlling systems. Gross profit recorded at values which segments through a measure of is the measure of segment profit approximate third party selling segment profit or loss which is comprising revenue less cost prices and is not significant. referred to as ‘Gross Profit’ in the of sales.
REVENUE GROSS PROFIT 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 UK&I 290,285 296,796 64,032 69,490 Continental Europe 448,606 346,404 127,543 103,237 USA 171,313 157,719 50,682 45,465 APAC & ME 49,657 47,922 16,424 17,526 959,861 848,841 258,681 235,718
Continental Europe primarily includes Belgium, France, Germany, Luxembourg, Netherlands and Switzerland. Asia Pacific & Middle East mainly includes Australia, Dubai, Hong Kong, Japan and Singapore.
OTHER INFORMATION The Group’s revenue from external information about its segment excluding deferred tax assets) by customers, its gross profit and assets (non- current assets key location are detailed below:
REVENUE GROSS PROFIT 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 UK 275,839 276,160 58,828 63,085 Germany 206,130 152,363 67,739 52,210 USA 171,313 157,568 50,682 45,409 Netherlands 131,174 102,704 29,201 24,390 Other 175,405 160,046 52,231 50,624 959,861 848,841 258,681 235,718
SThree plc FINANCIAL STATEMENTS 107 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
2. SEGMENTAL ANALYSIS (continued)
NON-CURRENT ASSETS 30 November 30 November 2016 2015 £’000 £’000 UK 15,044 13,080 USA 2,481 2,175 Germany 589 509 Netherlands 165 134 Other 1,145 809 19,424 16,707
The following segmental analysis by and sectors (being the profession included as additional disclosure to brands, recruitment classification of candidates placed) have been the requirements of IFRS 8.
REVENUE GROSS PROFIT 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Brands Progressive 275,729 259,239 65,859 63,319 Computer Futures 265,751 216,590 75,231 62,944 Real Staffing Group 225,123 200,427 67,915 61,047 Huxley Associates 193,258 172,585 49,676 48,408 959,861 848,841 258,681 235,718 Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.
Recruitment classification Contract 874,440 763,937 173,260 150,814 Permanent 85,421 84,904 85,421 84,904 959,861 848,841 258,681 235,718 Sectors Information & Communication Technology 447,560 365,129 115,844 97,321 Banking & Finance 168,263 161,872 41,735 42,582 Life Sciences 147,056 120,991 54,262 45,854 Energy 107,889 124,946 19,595 26,257 Engineering 79,016 67,476 23,253 20,032 Other 10,077 8,427 3,992 3,672 959,861 848,841 258,681 235,718
Other includes Procurement & Supply Chain and Sales & Marketing.
108 FINANCIAL STATEMENTS SThree plc NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 November 2016
3. GAIN ON DISPOSAL OF SUBSIDIARIES - EXCEPTIONAL ITEMS
In the prior year, the Group the amount of the final earn out gain was classified as an recognised a gain of £0.4m in received (£2.0m) against the exceptional item consistent with relation to the disposal of IT Job amount estimated as receivable at the previous presentation. Board in July 2013. This represented the previous year end (£1.6m). The
4. OPERATING PROFIT
Operating profit is stated after charging/(crediting):
30 November 30 November 2016 2015 £’000 £’000 Depreciation (note 10) 2,276 1,910 Amortisation (note 11) 3,440 3,181 Accelerated amortisation and impairment of intangible assets (note 11) - 1,471 Foreign exchange gains (849) (381) Staff costs (note 5) 168,971 149,389 Movement in bad debt provision and debts directly written off 573 552 Loss on disposal of property, plant and equipment 194 38 Gain on disposal of subsidiaries (note 3) - (377) Operating lease charges - Motor vehicles 1,449 1,212 - Land and buildings 11,279 9,419
AUDITORS’ REMUNERATION During the year the Group (including its subsidiaries) obtained the following services from the Company auditors and its associates:
30 November 30 November 2016 2015 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 statements 72 72 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 316 308 - Tax advisory services - 21 - All other non-audit services 82 125 Fees charged to operating profit 470 526
SThree plc FINANCIAL STATEMENTS 109 5. DIRECTORS AND EMPLOYEES
Aggregate remuneration of employees including Directors was:
30 November 30 November 2016 2015 £’000 £’000 Wages and salaries (including bonuses) 144,506 127,060 Social security costs 18,331 15,925 Other pension costs 1,877 1,544 Temporary staff costs 1,364 726 Share-based payments 2,893 4,134 168,971 149,389
The staff costs capitalised during the year on internally developed assets (note 11) and not included in the above amounts were £2.2m (2015: £2.4m).
The average monthly number of employees (including Executive Directors) during the year was:
30 NOVEMBER 2016
Continental UK&I 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
30 NOVEMBER 2015 *RESTATED Continental UK&I Europe USA APAC & ME Total Sales 611 1,018 329 220 2,178 Non-sales 384 98 50 27 559 995 1,116 379 247 2,737
* 2015 figures have been restated to comply with current year presentation.
Included in the headcount numbers employed contractor model. Details of the Directors’ above were 102 (2015: 79) They are not included in the remuneration for the year including temporary full time employees. numbers above as they are not the highest paid director, which considered to be full time form part of these financial There were also on average 1,163 employees of the Group. statements, are provided in the (2015: 910) contractors engaged audited information section of the during the year under the Directors’ Remuneration Report.
110 FINANCIAL STATEMENTS SThree plc 6. FINANCE INCOME AND COSTS
30 November 30 November 2016 2015 £’000 £’000 Finance income Bank interest receivable 49 22 Other interest 30 42 79 64 Finance costs Bank loans and overdrafts (549) (751) Net finance costs (470) (687)
7. TAXATION
(a) Analysis of tax charge for the year
30 November 30 November 2016 2015 Before exceptional Exceptional Total items items Total £’000 £’000 £’000 £’000 Current taxation UK Corporation tax charged on profits for the year 3,931 4,672 77 4,749 Adjustments in respect of prior periods 63 (63) - (63) Overseas Corporation tax charged on profits for the year 5,418 5,454 - 5,454 Adjustments in respect of prior periods 1,218 (252) - (252) Total current tax charge 10,630 9,811 77 9,888 Deferred taxation Origination and reversal of temporary differences (768) 1,556 - 1,556 Adjustments in respect of prior periods (note 18) 194 (17) - (17) Total deferred tax (credit)/charge (574) 1,539 - 1,539 Total income tax charge in the income statement 10,056 11,350 77 11,427
SThree plc FINANCIAL STATEMENTS 111 7. TAXATION (continued)
(b) Reconciliation of the effective tax rate The Group‘s tax charge for the year exceeds (2015: exceeds) the UK statutory rate and can be reconciled as follows:
30 November 30 November 2016 2015 Before exceptional Exceptional items items Total £’000 £’000 £’000 £’000 Profit before taxation 37,298 37,715 377 38,092 Profit before taxation multiplied by the standard rate of corporation tax in the UK at 20% (2015: 20.33%)* 7,460 7,667 77 7,744 Effects of: Disallowable items 442 937 - 937 Differing tax rates on overseas earnings 1,588 1,454 - 1,454 Adjustments in respect of prior periods 1,475 (332) - (332) Adjustment due to tax rate changes (41) 120 - 120 Tax losses for which no deferred tax was (recognised)/derecognised** (868) 1,504 - 1,504 Tax expense for the year 10,056 11,350 77 11,427 Effective tax rate 27.0% 30.1% 20.4% 30.0%
* The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015 and is applicable for the year ended 30 November 2016. ** 2015 figure includes £1.1m in respect of prior periods.
(c) Current and deferred tax movement recognised directly in equity 30 November 30 November 2016 2015 £’000 £’000 Equity-settled share-based payments Current tax (26) (53) Deferred tax 38 70 12 17
The Group expects to receive tax deduction (or estimated future situation, the excess of the current additional tax deductions in tax deduction) exceeds the or deferred tax should be respect of share options currently amount of the related cumulative recognised in equity. At 30 unexercised. Under IFRS the Group remuneration expense, this indicates November 2016 a deferred tax is required to provide for deferred that the tax deduction relates not asset of £0.6m (2015: £0.9m) has tax on all unexercised share only to remuneration expense but been recognised in respect of options. Where the amount of the also to an equity item. In this these options (note 18).
112 FINANCIAL STATEMENTS SThree plc 8. DIVIDENDS
30 November 30 November 2016 2015 £’000 £’000 Amounts recognised as distributions to equity holders in the year Interim dividend of 4.7p (2015: 4.7p) per share (i) 6,049 5,903 Final dividend of 9.3p (2015: 9.3p) per share (ii) 11,923 11,768 17,972 17,671 Amounts proposed as distributions to equity holders Interim dividend of 4.7p (2015: 4.7p) per share (iii) 6,052 6,049 Final dividend of 9.3p (2015: 9.3p) per share (iv) 12,002 12,009
(i) 2015 interim dividend of 4.7 pence (2015: 4.7 pence) per shareholders on record at 5 May pence (2014: 4.7 pence) per share was paid on 9 December 2017. This proposed final share was paid on 11 December 2016 to shareholders on record dividend is subject to approval 2015. at 4 November 2016. by shareholders at the Company’s next Annual (ii) (iv) 2015 final dividend of 9.3 pence The Board has proposed a 2016 General Meeting on 20 April (2014: 9.3 pence) per share was final dividend of 9.3 pence 2017, and therefore, has not paid on 3 June 2016. (2015: 9.3 pence) per share, been included as a liability in to be paid on 9 June 2017 to (iii) 2016 interim dividend of 4.7 these financial statements.
9. EARNINGS PER SHARE
The calculation of the basic and held as treasury shares (note 19(a)) takes into account profitability of diluted earnings per share (‘EPS’) is and those held in the EBT which the underlying tracker businesses set out below: are treated as cancelled. and SThree plc’s earnings per share. Therefore, the dilutive effect Basic EPS is calculated by dividing For diluted EPS, the weighted on EPS will vary in future periods the earnings attributable to owners average number of shares in issue depending on any changes in of the Company by the weighted is adjusted to assume conversion of these factors. average number of shares in issue dilutive potential shares. Potential during the year excluding shares dilution resulting from tracker shares
30 November 30 November 2016 2015 £’000 £’000 Earnings Profit after taxation before exceptional items 27,242 26,365 Exceptional items net of tax - 300 Profit for the year attributable to owners of the Company 27,242 26,665
million million Number of shares Weighted average number of shares used for basic EPS 128.3 127.0 Dilutive effect of share plans 3.8 5.6 Diluted weighted average number of shares used for diluted EPS 132.1 132.6
SThree plc FINANCIAL STATEMENTS 113 9. EARNINGS PER SHARE (continued)
30 November 30 November 2016 2015 pence pence Basic Basic EPS after exceptional items 21.2 21.0 Impact of exceptional items - (0.2) Basic EPS before exceptional items 21.2 20.8 Diluted Diluted EPS after exceptional items 20.6 20.1 Impact of exceptional items - (0.2) Diluted EPS before exceptional items 20.6 19.9
10. PROPERTY, PLANT AND EQUIPMENT
Computer Leasehold Fixtures and equipment improvements fittings Total £’000 £’000 £’000 £’000 Cost At 30 November 2014 11,861 6,855 3,410 22,126 Additions 1,738 1,185 640 3,563 Disposals (1,159) (1,224) (388) (2,771) Exchange differences (273) (231) (147) (651) 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 Accumulated depreciation At 30 November 2014 11,019 4,289 2,599 17,907 Depreciation charge for the year 722 844 344 1,910 Disposals (1,135) (1,074) (348) (2,557) Exchange differences (270) (195) (127) (592) 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 Net book value At 30 November 2016 1,864 4,033 1,203 7,100 At 30 November 2015 1,831 2,721 1,047 5,599
A depreciation charge of £2.3m Disposals included the assets with The Group has not leased any (2015: £1.9m) is included in a net book value of £0.2m (2015: assets under finance lease administrative expenses. £0.2m) that were disposed of obligations. during the year for £nil.
114 FINANCIAL STATEMENTS SThree plc 11. INTANGIBLE ASSETS
Internally generated Software and systems Computer Assets under development Goodwill software construction costs Trademarks Total £’000 £’000 £’000 £’000 £’000 £’000 Cost At 30 November 2014 206,313 9,063 712 27,244 71 243,403 Additions - 86 4,595 - - 4,681 Disposals - (167) - (49) - (216) Reclassification - - (1,663) 1,663 - - 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 Accumulated amortisation and impairment At 30 November 2014 205,480 6,912 - 19,863 68 232,323 Amortisation charge for the year - 257 - 2,923 1 3,181 Accelerated amortisation and impairment charge - 759 - 712 - 1,471 Disposals - (167) - (48) - (215) 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 Net book value At 30 November 2016 833 625 406 9,732 1 11,597 At 30 November 2015 833 1,221 3,644 5,408 2 11,108
Additions to internally generated An amortisation charge of £3.4m Management has performed an assets included the development (2015: £3.2m) is included in impairment review of goodwill and of key sales, HR and finance administrative expenses. concluded that no impairment is systems (and the enhancement required. Disclosures required under The net book value of goodwill of the existing assets). Only costs IAS 36 ‘Impairment of Assets’ have is allocated to SThree Staffing UK directly attributable to the not been included on the basis business, which is 100% (2015: 100%) development and enhancement that the goodwill value is not owned by the Group. of these systems were capitalised considered material. during the year in accordance with the strict criteria under IAS 38.
SThree plc FINANCIAL STATEMENTS 115 12. INVESTMENTS
GROUP In May 2016, the Board approved investment, $0.5m was paid on designs and builds a suite of mobile an available-for-sale investment 27 June 2016 with the remaining applications that allow professional of $1.0m (£0.7m) in Ryalto Limited, $0.5m on 27 October 2016. The contractors and employers to (‘Ryalto’) a company incorporated Group holds 18% of the issued connect with each other instantly. in the United Kingdom. Of this share capital of Ryalto. Ryalto
COMPANY £’000 Cost At 30 November 2014 318,895 Additions - Settlement of vested tracker shares 8,512 - Relating to unvested tracker shares 5 Capital contribution relating to share-based payments (IFRS 2) 2,994 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 Provision for impairment At 30 November 2014 and 30 November 2015 6,855 Provision made during the year 40,077 At 30 November 2016 46,932 Net carrying value At 30 November 2016 290,233 At 30 November 2015 323,551
During the year, the Company held in the subsidiaries. In 2016, the multiple, EBITDA multiple and net settled a number of vested tracker Company recognised an increase asset value of the corresponding shares by awarding SThree plc shares in the investments in its subsidiaries of subsidiaries depending on the nature (note 19(b)), resulting in an increase £2.0m (2015: £3.0m) relating to such of subsidiary activities. in the Company’s investment in share options and awards. Sensitivity analysis has been relevant subsidiary businesses. During the year, the Company performed on the fair value The Company also acquired performed an impairment review of calculations, holding all other certain unvested tracker shares its investments in subsidiaries and variables constant, to: where employees left the business recognised an impairment loss of (i) apply a 5% reduction in forecast prior to reaching the pre-agreed £40.1m where the recoverable GP. This would result in further holding period. amounts were less than the carrying impairment of £nil. values of the corresponding (ii) apply a 5% reduction to forecast Tracker share arrangements are investments. The recoverable EBITDA. This would result in a further detailed in note 1. amounts were calculated based on impairment of £9.3m. IFRS 2 requires that any options or fair value less cost to sell (‘fair value’). awards granted to employees of A full list of the Company’s subsidiaries The key factors considered in subsidiary undertakings will increase that existed as at 30 November 2016 calculating fair value were GP the carrying value of the investment are shown on pages 130 and 131.
116 FINANCIAL STATEMENTS SThree plc 13. TRADE AND OTHER RECEIVABLES
GROUP COMPANY 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Trade receivables 132,636 112,171 - - Provision for impairment (1,789) (1,632) - - Trade receivables - net 130,847 110,539 - - Other receivables 2,225 2,479 1,237 1,326 Prepayments 4,379 3,996 270 353 Accrued income 51,718 40,139 - - 189,169 157,153 1,507 1,679
Other receivables include £0.9m where the contractor has for impairment of the receivables (2015: £1.2m) for loans given to submitted an invoice and within based on a specific review of certain individuals in previous years accruals in respect of unsubmitted significant outstanding invoices. towards their subscription for tracker and unapproved timesheets For those invoices not specifically shares (note 23(d)). Tracker share (note 15). reviewed, provisions are provided loans are unsecured and charged at differing percentages based Trade receivables and cash and interest at a rate of 3% (2015: 4%). on the age of the receivable. In cash equivalents are deemed to be No such new loans were given to determining these percentages, all current loans and receivables employees during the current year. the Group analyses its historical for disclosure under IFRS 7 collection experience and current Accrued income represents the ‘Financial Instruments’ - Disclosures economic trends. These amounts Contract revenue earned but (note 23). No interest is charged on are included within administrative not invoiced at the year end. It is trade receivables. expenses. Trade receivables are based on the value of the unbilled The Group makes judgements on written off when the Group timesheets from the contractors a customer by customer basis as determines that it is unlikely that for the services provided up to the to its ability to collect outstanding future remittances will be received. year end. The corresponding costs trade receivables and provides are shown within trade payables,
GROUP 30 November 30 November 2016 2015 Provision for impairment of trade receivables £’000 £’000 At the beginning of the year 1,632 1,846 Charge for the year 712 714 Bad debts written off (261) (188) Reversed as amounts recovered (562) (444) Exchange differences 268 (296) At the end of the year 1,789 1,632
Other classes within trade and considers that the carrying value values and are deemed to be other receivables do not contain of trade and other receivables is current assets. impaired assets. Management approximately equal to their fair
SThree plc FINANCIAL STATEMENTS 117 14. CASH AND CASH EQUIVALENTS
GROUP COMPANY 30 November 30 November 30 November 30 November 2016 2015 2016 2015 *RESTATED *RESTATED £’000 £’000 £’000 £’000 Cash at bank 15,707 25,966 394 908 Bank overdraft (5,685) (19,807) - (32) Cash and cash equivalents per the statements of cash flows 10,022 6,159 394 876
* An explanation of the restatement is provided in note 1 under basis of preparation.
Cash and cash equivalents comprise The Group has cash pooling pooling arrangements are cash and short-term bank deposits arrangements with legally reported on a net basis in the with an original maturity of three enforceable rights to set-off cash statement of financial position. months or less, net of outstanding and overdraft balances. Where Other bank overdrafts are shown bank overdrafts. The carrying amount there is an intention to settle on a separately as above and in the of these assets is approximately net basis, cash and overdraft statement of financial position. equal to their fair values. balances relating to the cash
15. TRADE AND OTHER PAYABLES
GROUP COMPANY 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Trade payables 49,157 42,177 - - Amounts due to subsidiaries (note 22) - - 10,139 8,218 Other taxes and social security 9,726 9,205 311 258 Other payables 2,718 2,589 647 133 Accruals 77,258 63,068 1,074 1,531 138,859 117,039 12,171 10,140
The fair values of trade and other Amounts due to subsidiaries are Accruals also include amounts payables are not materially subject to annual interest at a rate payable to the contractors in different from those disclosed above. of 1.3% (2015: 1.3%) above 3 month respect of unsubmitted and LIBOR of the respective currencies in unapproved timesheets (note 13). Trade and other payables are which balances are denominated. predominantly interest free.
16. BORROWINGS
The Group has a committed The average interest rate paid on maintain financial ratios over revolving credit facility (‘RCF’) of the RCF during the year was 1.8% interest cover, leverage and £50m along with an uncommitted (2015: 1.8%). The Group also has an guarantor cover (note 23(c)). The £20m accordion feature in place uncommitted £5m overdraft facility Group has been in compliance with HSBC and RBS, giving the with RBS. with these covenants throughout Group an option to increase its the year. At the year end the Group and the total borrowings under the facility Company had drawn down £nil The Group’s exposure to interest up to £70m. The RCF expires in May (2015: £nil) on these facilities. rates, liquidity, foreign currency 2019. The funds borrowed under the and capital management risks is facility bear interest at a minimum The RCF is subject to certain disclosed in note 23. annual rate of 1.3% (2015: 1.3%) covenants requiring the Group to above 3 month Sterling LIBOR.
118 FINANCIAL STATEMENTS SThree plc 17. PROVISIONS FOR LIABILITIES AND CHARGES
Tracker share Onerous GROUP Dilapidations Restructuring liability Legal contract Total £’000 £’000 £’000 £’000 £’000 £’000 At 30 November 2014 2,209 4,791 3,959 359 705 12,023 (Released)/charged to the income statement (270) (348) (20) 28 - (610) Utilised during the year (116) (3,502) (360) (53) (430) (4,461) Reclassification - - - - (275) (275) New tracker share consideration - - 35 - - 35 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
30 November 30 November 2016 2015 Analysis of total provisions £’000 £’000 Current 4,953 5,579 Non-current 907 1,133 5,860 6,712
Provisions are not discounted as Dilapidations Restructuring the Group believes that the effect The Group is obliged to pay for The provision relates to restructuring of the time value of money is dilapidations at the end of its exercises undertaken by the Group immaterial. The provisions are tenancy of various properties. and treated as an exceptional measured at cost which Provision has been made based on item in previous years and related approximates to the present independent professional estimates to onerous property leases, value of the expenditure required of the likely costs based on current personnel costs and other. At the to settle the obligation. conditions of the properties and year end £0.1m (2015: £0.9m) the provision has been spread over remains unpaid.
the relevant lease term.
The liability in regards to dilapidations and restructuring provision is expected to crystalise as follows:
30 November 30 November 2016 2015 £’000 £’000 Within one year 981 1,631 One to five years 549 882 After five years 358 251 1,888 2,764
SThree plc FINANCIAL STATEMENTS 119 17. PROVISIONS FOR LIABILITIES AND CHARGES (continued)
Tracker share liability outflows is subject to the factors allotment of new tracker share The provision relates to the governing each tracker share and awards in the year. obligation to repay amounts is considered to be within one year. received or receivable in relation Legal During the year £0.7m (2015: The provision relates to ongoing to the subscriptions received for £0.4m) of the provision was utilised, legal matters and the timing of the tracker shares awarded to principally in relation to settled economic outflows is subject to senior individuals under the terms tracker shares. New consideration the factors governing each case. of the tracker share arrangements of £0.4m (2016: £35,000) represents (note 1). The timing of economic subscriptions received against the
18. DEFERRED TAX
Accelerated tax Share-based GROUP depreciation payments Tax losses Other* Total £’000 £’000 £’000 £’000 £’000 At 30 November 2014 322 831 1,263 1,008 3,424 (Charge)/credit to income statement for year (132) 146 (1,156) (294) (1,436) Prior year (charge)/credit to income statement for the year (227) 39 (59) 264 17 Adjustment due to tax rate changes 10 (53) - (77) (120) Charged directly to equity - (70) - - (70) Exchange differences (15) 1 (48) 27 (35) 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 the year (578) - 28 356 (194) Adjustment due to tax rate changes (41) 4 - 78 41 Charged directly to equity - (38) - - (38) Exchange differences (54) 28 46 165 185 At 30 November 2016 (453) 615 855 1,484 2,501
* This includes £1.1m in relation to the property related accruals in the USA.
Deferred tax assets and liabilities legally enforceable right to do so. deferred tax balances for financial are offset where the Group has a The following is an analysis of the reporting purposes:
30 November 30 November 2016 2015 £’000 £’000
Deferred tax assets 3,105 2,085 Deferred tax liabilities (604) (305) Net deferred tax assets 2,501 1,780
120 FINANCIAL STATEMENTS SThree plc 18. DEFERRED TAX (continued)
Deferred tax assets that are At the reporting date, the Group The Finance (No. 2) Act 2015 expected to be recovered within has unused tax losses of £29.3m reduced the current main one year are £1.8m (2015: £1.2m) (2015: £27.3m) available for offset corporation tax rate of 20% to and deferred tax liabilities that are against future profits. A deferred 19% with effect from 1 April 2017; expected to be settled within one tax asset of £0.9m (2015: £nil) was and then to 18% with effect from year are £43,000 (2015: £26,000). recognised in respect of losses of 1 April 2020. The Finance Act 2016 £2.9m (2015: £nil). No deferred tax further reduced the main rate of Deferred tax assets are recognised asset was recognised in respect UK corporation tax from 18% to for carry-forward tax losses to the of the remaining £26.4m (2015: 17% from 1 April 2020. UK deferred extent that the realisation of the £27.3m) losses. tax assets comprise share-based related tax benefit through future payments and other provisions. It taxable profits from the respective Included in unrecognised tax losses is anticipated that these assets will jurisdictions is probable. In assessing are losses of £6.1m (2015: £8.1m) be recovered within three years whether to recognise deferred tax subject to expiry. Of this amount, and as such we have continued to assets, the Group has considered £0.8m expires in 2017, £1.1m in 2020, recognise UK deferred tax assets at both current and the forecast £2.2m in 2021 and £2.0m expires at a rate of 19%. trading performance in these various other times up to 2034. The territories and the expectations remaining unrecognised tax losses regarding the levels of profitability of £20.3m (2015: £19.2m) may be that can be achieved. carried forward indefinitely.
COMPANY The Company’s deferred tax asset relates to the equity-settled share-based payments.
£’000 At 30 November 2014 398 Credit to income statement for the year 5 Adjustment due to tax rate changes (23) Charged directly to equity (27) At 30 November 2015 353 Charged to income statement for the year (113) Charged directly to equity (11) At 30 November 2016 229
SThree plc FINANCIAL STATEMENTS 121 19. SHARE CAPITAL
GROUP AND COMPANY (a) Share Capital Share capital Treasury reserve Number of Issued and fully paid ordinary shares £’000 £’000 At 30 November 2014 126,526,387 1,266 (162) Issue of new shares 2,915,523 29 - Repurchase of own shares (337,121) - (1,212) Utilisation of treasury shares 19,490 - 56 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)
At the year end, 165,357 (2015: price paid per share was 295p resulted in a credit to share 456,189) shares were held in the (2015: 359p) with total capital and share premium, with a Group’s EBT. consideration amounting to corresponding debit to the Group’s £6,844,650 (2015: £1,212,000). retained earnings and provision for Share issue During the year 510,081 shares tracker share liability. During the year 1,748,120 (2015: (2015: 19,490) were transferred from The Group also issued new tracker 2,915,523) new ordinary shares treasury for LTIP exercise. At the share awards during the year for were issued, resulting in a share year end, 2,187,080 (2015: 373,584) subscription value of £355,000 premium of £4,266,000 (2015: shares were held in treasury. (2015: £35,000). £8,670,000). Of the shares issued, 1,495,964 (2015: 2,178,589) were (b) Share-based payments LTIP, SAYE and other share issued to tracker shareholders on Tracker share awards in schemes settlement of vested tracker shares, subsidiary companies The Group has a number of share with the remaining issued pursuant As described in note 1, the Group schemes to incentivise its Directors to the exercise of share awards makes tracker share awards in and employees. All schemes are under LTIP and the Save As You respect of certain subsidiary treated as equity-settled (except Earn (SAYE) schemes. businesses to senior individuals who SIP) as the Group has no legal participate in the development of or constructive obligation to Treasury reserve those businesses. repurchase or settle the options During the year, SThree plc During the year, the Group settled in cash. The schemes are purchased 2,323,577 of its own certain vested tracker shares for a detailed overleaf. shares to be held as treasury shares total consideration of £4.6m (2015: (2015: 337,121). The average £8.5m) by issuing new shares. This
122 FINANCIAL STATEMENTS SThree plc 19. SHARE CAPITAL (continued)
30 November 2016 30 November 2015 Number Number Charge of share Charge of share Vesting Expiry Valuation Performance Scheme (£’000) options (£’000) options period date method metrics Incremental EPS growth/ TSR ranking Montecarlo against LTIP 2,487 4,624,485 3,876 4,133,107 3 years 10 years model comparator 6 months after 3 year vesting SAYE 336 394,172 257 903,612 3 years period Binomial None Sub-total 2,823 5,018,657 4,133 5,036,719 SIP 70 N/A 1 N/A 1 year N/A N/A None Total 2,893 5,018,657 4,134 5,036,719
Long Term Incentive Plan (LTIP) The conditions of the LTIP are provided in the Directors’ Remuneration Report.
Number of options At 30 November 2015 4,133,107 Granted 2,012,915 Exercised (716,216) Forfeited (805,321) At 30 November 2016 4,624,485
Out of the 4,624,485 options weighted average share price At the end of the reporting period, outstanding (2015: 4,133,107), at the time of exercise was £2.91 2016 share option grants were the 470,277 options were exercisable (2015: £3.45) per share. The related latest options outstanding under (2015: 449,156). Options exercised transaction costs were negligible. the LTIP and they were valued as during the year under the LTIP were The share options had a weight- follows: satisfied by shares in the EBT ed average exercise price of £nil treasury shares. The related (2015: £nil).
2016 2015 Weighted average fair value (£) 2.42 2.64 Key assumptions used: Share price at grant date (£) 2.97 3.24 Expected volatility* 25.60% 29.00% Annual risk-free interest rate 0.70% 0.84% Expected life (years) 3 3
* Expected volatility is determined by using the historic daily volatility of SThree’s shares as measured over a period commensurate with the expected life of the share options, i.e. 3 years.
Other schemes The SAYE, SIP and EBT arrangements are not deemed material for further disclosure.
SThree plc FINANCIAL STATEMENTS 123 20. CONTINGENCIES
The Group has contingent liabilities in the ordinary course of business. in any material liabilities other than in respect of legal claims arising They are not anticipated to result those provided for (note 17).
21. COMMITMENTS
Operating leases the end of the lease period at At the end of the reporting period, The Group leases various office market rate. the Group had outstanding properties under non-cancellable commitments for future minimum The Group also leases various operating lease arrangements. The lease payments under motor vehicles under non- lease terms are between 1 to 17 non-cancellable operating cancellable operating lease years, and the majority of the lease leases, which fall due as follows: arrangements. The lease term is arrangements are renewable at typically 3 years.
MOTOR VEHICLES LAND AND BUILDINGS 30 November 30 November 30 November 30 November 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Within one year 1,037 746 11,710 10,588 One to five years 1,058 1,085 34,112 28,193 After five years - - 17,960 16,910 2,095 1,831 63,782 55,691
Capital commitments £0.1m (2015: £0.8m). the Group has bank guarantees At the end of the reporting period, in issue for commitments which the Group contracted capital Guarantees amounted to £2.7m (2015: £2.1m). At the end of the reporting period, expenditure but not yet incurred of
22. RELATED PARTY TRANSACTIONS
GROUP Balances and transactions with Remuneration of key determined by the SThree plc subsidiaries have been eliminated management personnel (‘KMP’) Remuneration Committee in on consolidation and are not The Group’s key management accordance with its stated disclosed in this note. Transactions comprises members of the GMB, policy, are given in the Directors’ between the Group and its other members of the Board of Remuneration Report. Directors and members of the Directors and key managers who Total number of KMPs for the GMB, who are deemed to be key are deemed to influence the day year was 21 (2015: 22). Total management personnel, to day activities. Details of remuneration for members of key are disclosed below. Directors’ remuneration, as management is detailed below.
30 November 30 November 2016 2015 £’000 £’000 Short-term employee benefits 6,570 7,180 Share-based payments 1,655 3,054 Post-employment benefits 312 258 8,537 10,492
124 FINANCIAL STATEMENTS SThree plc 22. RELATED PARTY TRANSACTIONS (continued)
COMPANY The Company has related party from the Company is disclosed than those disclosed in the relationships with its subsidiaries, in the Directors’ Remuneration Remuneration Report and below. with members of its Board and Report. The Company did not have Details of transactions between key managers. The Directors’ any transactions with the Directors the Company and other related remuneration which they receive during the financial year other parties are disclosed below.
30 November 30 November 2016 2015 Transactions with the related parties during the year £’000 £’000 Investments in subsidiaries (note 12) (6,759) (11,511) Impairment of investment in subsidiaries (note 12) (40,077) - Loans and advances received from subsidiaries 1,921 4,409 Loans repaid by Directors 13 33 Loans repaid by other KMP 32 138 Interest income received from subsidiaries 37 31 Interest paid by subsidiaries (28) (13) Dividend income received from subsidiaries 24,665 31,156
No purchase or sales transactions were entered into between the Company and its subsidiaries.
30 November 30 November 2016 2015 Year end balances arising from transactions with related parties £’000 £’000
Investments in subsidiaries 290,233 323,551
Amounts due to subsidiaries (10,139) (8,218)
Amounts receivable from Directors 189 202
Amounts receivable from other KMP 256 288
23. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Financial risk factors to treasury activities. The Group’s Group treasury enters into a limited The Group reports in Sterling and internal auditors periodically amount of derivative transactions, pays dividends out of Sterling review the treasury internal control principally currency swaps and profits. The role of the Group’s environment and compliance with forward currency contracts, with corporate treasury function is to policies and procedures. the purpose of managing the manage and monitor external and currency risks arising from Each year, the Board reviews the internal funding requirements and operations and financing of Group’s currency hedging strategy financial risks in support of subsidiaries. At the year end, the to ensure it is appropriate. The corporate objectives. Treasury Group had net foreign exchange Group does not hold or issue activities are governed by policies swaps of: AED8.0m, AU$3.5m, derivative financial instruments for and procedures approved by the CHF(0.6m), HK$16.8m, JPY50.0m, speculative purposes and its Board. A treasury management SG$2.6m and US$0.2m being an treasury policies specifically committee, chaired by the Chief overall equivalent of £7.1m (2015: prohibit such activity. All transactions Financial Officer, meets on a overall equivalent of £11.4m). The in financial instruments are monthly basis to review treasury contracts were mainly taken out undertaken to manage the risks activities and its members receive close to the year end date for a arising from underlying business management information relating period of 1 to 22 days (2015: 1 to 24 activities, not for speculation.
SThree plc FINANCIAL STATEMENTS 125 23. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
days) and they had net fair value comprising cash and cash The Group is mainly exposed of circa £40,000 (2015: £10,000) at equivalents (note 14). to the Euro and US Dollar. If the the year end, which is insignificant. Euro or US Dollar strengthened Except for compliance with against Sterling by a The Group is exposed to a number certain bank covenants (note movement of 10%, the of different financial risks including 23(c)), the Group is not subject anticipated impact on the capital management, foreign to any externally imposed Group‘s results in terms of currency rates, liquidity, credit and capital requirements. translational exposure would interest rates risks, which were not be an increase in profit before materially changed from previous (b) Foreign currency risk taxation of £4.3m and £0.8m year. The Group’s objective and management (2015: £3.5m and £1.1m) strategy in responding to these The Group uses Sterling as respectively, with a similar risks are set out below and were its presentation currency. It decrease if the Euro or US also not materially changed from undertakes transactions in a Dollar weakened against previous year. number of foreign currencies. Sterling by 10%. Consequently, exposures to exchange rate fluctuations (a) Capital risk management (c) Liquidity risk management The Group’s objectives when do arise. Such exchange rate The Group’s treasury function managing capital are to movements affect the Group‘s centrally co-ordinates safeguard the Group and its transactional revenues, cost of relationships with banks, subsidiaries’ ability to continue sales, the translation of earnings manages borrowing as going concerns in order to and the net assets/ liabilities of requirements, foreign exchange provide returns for shareholders its overseas operations. needs and cash management. and benefits for other The Group is also exposed The Group has access to a stakeholders and to maintain to foreign currency risks from committed RCF of £50m along an optimal capital structure to the value of net investments with an uncommitted £20m minimise the cost of capital. outside the United Kingdom. accordion feature in place In order to maintain or adjust The intercompany loans which with HSBC and RBS, giving the the capital structure, the are treated as net investments Group an option to increase Group may adjust the amount in foreign operations are not its total borrowings under the of dividends paid to planned to be settled in the facility up to £70m. The Group shareholders, delay or reduce foreseeable future as they also has an uncommitted £5m the settlement of vested are deemed to be a part overdraft facility with RBS. £Nil tracker shares, sell assets to of the investment. Therefore, (2015: £nil) was drawn down reduce debt, return capital exchange differences arising against these facilities at the to shareholders or issue new from the translation of the net year end. shares, subject to applicable investment loans are taken into The RCF expires in May 2019 rules. The Group’s policy is to equity. There was no and requires, amongst other settle the vested tracker shares ineffectiveness to be recorded matters, compliance with in the Company’s shares (issue from net investment in foreign the following three financial of new shares or using treasury entity hedges. covenant ratios which are shares purchased from the The Group’s businesses tested twice a year on the market). During the year, the generally raise invoices and basis of year end and half-year vested tracker shares were incur expenses in their local financial data: settled by the new issue of currencies. Local currency (i) Interest Cover: interest and shares (note 19(a)). cash generated is remitted via dividend cover shall not be The capital structure of the intercompany transfers to the less than the ratio of 1.2:1 at Group consists of equity United Kingdom. The Group any time; attributable to equity holders generally converts foreign (ii) Leverage: the ratio of total of the parent of £75.7m (2015: currency balances into Sterling net debt on the last day £59.4m), comprising share to manage its cash flows. of a period to EBITDA in capital, share premium, other respect of that period shall reserves and retained earnings not exceed the ratio of 2:1; as disclosed in the statement and of changes in equity and net Foreign currency sensitivity cash of £10.0m (2015: £6.2m), (iii) Guarantor Cover: the analysis
126 FINANCIAL STATEMENTS SThree plc 23. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
aggregate adjusted EBITDA EBITDA and gross assets of liabilities which are held at and gross assets of all the the Group as a whole. amortised cost based on the Guarantor subsidiaries must contractual amounts payable The table below shows the at all times represent at on the date of repayment: maturity profile of the financial least 85% of the adjusted
Trade and other payables GROUP COMPANY £’000 £’000 At 30 November 2016 Within one year 129,133 11,860 At 30 November 2015 Within one year 107,834 9,882
(d) Credit risk management Exposure to all transaction limits there are no indications as of Credit risk refers to the risk that are monitored daily. the reporting date that the a counterparty will default debtors will not meet their The Group mitigates its credit on its contractual obligations payment obligations. risk from available-for-sale resulting in financial loss to financial investments by The Group does not typically the Group. keeping the value of the renegotiate the terms of trade In the normal course of investments at very low and receivables, hence the business, the Group periodically reviewing the outstanding balance is participates in cash pooling financial performance of the included in the analysis based arrangements with its relevant undertakings. on the original payment terms. counterparty bank. The There were no significant The Group mitigates its credit maximum exposure to a single renegotiated balances risk from trade receivables by banking group for deposits outstanding at the year end. using a credit rating agency and funds held on account to assess new clients and Trade receivables of £106.6m as at the year end was £4.4m payment history to assess (2015: £84.0m) were neither (2015: £3.5m). The Group will further credit extensions to past due nor impaired. not accept any counterparty existing clients. In addition, bank for its deposits unless it As of 30 November 2016, trade the spread of the client base has been awarded a minimum receivables of £22.9m (2015: (circa 9,000 clients) helps to recognised credit rating of A3/ £24.5m) were past due but not mitigate the risk of individual Prime-2 (Moody’s). Some local impaired. These pertain to a client failure having a material banks in emerging markets number of unrelated impact on the Group. may have lower ratings but the customers for whom there is no funds at risk will be small. The Trade receivables of the Group recent history of default. Trade Group will permit exposures are analysed in the table receivables of £3.1m (2015: with individual counterparty overleaf. With respect to the £3.7m) were impaired, against banks and exposure types up trade receivables that are which a provision of £1.8m to pre-defined limits as part neither impaired nor past due, (2015: £1.6m) was recorded. of the Group treasury policy.
SThree plc FINANCIAL STATEMENTS 127 23. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
2016 2015 Trade receivables £’000 £’000 Neither impaired nor past due 106,635 83,982 Ageing of past due but not impaired under 30 days 17,007 17,638 31 to 60 days 4,449 5,223 61 to 90 days 1,491 1,601 Ageing of impaired under 90 days 81 296 over 90 days 2,973 3,431 Provision for impairment (1,789) (1,632) Total 130,847 110,539
The majority of the accrued The Group finances its interest rate risk except for the income balance is less than operations through a mixture revolving credit facility (note 60 days old and nothing is over of retained profit and the 16). The only financial assets 90 days past due. revolving credit facility. which accrued interest were cash and cash equivalents The Group’s credit risk from The Group does not hedge (note 14) with maturity of less loans given to certain tracker the exposure to variations in than a year and were subject shareholders (note 13) is interest rates presented by the to floating interest income. mitigated by the fact that above instruments. the loans are spread over a As part of the presentation Taking into consideration all number of individuals (2016: 28 of market risks, IFRS 7 requires variable rate borrowings and individuals; 2015: 35 individuals) disclosure on how hypothetical bank balances as at 30 and none of the individuals changes in risk variables affect November 2016, if the interest hold loans of material amounts. the price of financial rate payable or receivable Exposure to all individuals is instruments. Important risk moved by 100 basis points in regularly monitored and the variables are stock exchange either direction, the effect to individuals are asked to settle prices or indices. As at 30 the Group would be minimal. all or portion of their outstanding November 2016, the Group 100 basis points was used on balances when their first and the Company did not the assumption that tracker share is settled, when hold any material investments applicable interest rates are they receive dividend or if they to be classified as ‘available not likely to move by more leave the business. for sale’ or as ‘held for trading’. than this basis given the Therefore there are no (e) Interest rate risk pattern of interest rate financial instruments which management movements during the year. would be materially impacted The Group is also exposed to by risk variables affecting the interest rate risk from the (f) Interest rate profile of price of financial instruments. possibility that changes in financial assets/(liabilities) interest rates will affect future At the reporting date, the cash flows or the fair values of Group and the Company its financial instruments, did not have any significant principally financial liabilities. financial liabilities exposed to
128 FINANCIAL STATEMENTS SThree plc 23. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
(g) Currency profile of net cash and cash equivalents (including bank overdrafts)
Functional currency of Group operations: Cash and cash equivalents US Other Sterling Euro dollar currencies Total 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
At 30 November 2015 £’000 £’000 £’000 £’000 £’000 Functional currency Sterling (1,230) (309) 234 414 (891) Euro - 2,357 - - 2,357 US Dollar - - 1,018 - 1,018 Other 36 - 1,036 2,603 3,675 Total (1,194) 2,048 2,288 3,017 6,159
Other foreign currencies (h) Fair values of financial assets Where available, market held by the Group include: and liabilities values have been used to Australian Dollar, Bahrain Dinar, The carrying amounts of determine fair values. Where Brazilian Real, Canadian Dollar, financial assets and financial market values are not Chinese Renminbi, Hong Kong liabilities are equal to their fair available, fair values have Dollar, Indian Rupee, Japanese values. been calculated by Yen, Kuwait Dinar, Malaysian discounting expected cash Ringgit, Norwegian Krone, Fair value is the amount at flows at prevailing interest rates Qatar Riyal, Russian Ruble, which a financial instrument and by applying year end Singapore Dollar, Saudi Arabia could be exchanged in an exchange rates. A summary of Riyal, Swiss Franc, Thailand Baht arm’s length transaction the assumptions used for each and United Arab Emirates between informed and willing category of financial Dirham. parties, other than a forced or instrument is set out below. liquidation sale, and excludes The Company does not have accrued interest. exposure to other currencies.
Summary of methods and assumptions
Short-term deposits and borrowings Approximates to the carrying amount because of the short maturity of these instruments.
Cash and cash equivalents Approximates to the carrying amount.
Receivables and payables Approximates to the carrying amounts for current balances; there are no material longer term balances.
Financial instruments Market valuations at the end of the reporting period.
SThree plc FINANCIAL STATEMENTS 129 LIST OF SUBSIDIARIES
Full list of SThree plc’s subsidiaries as referenced in note 12 is as follows:
Country of Principal 2016 2015 incorporation activities SThree Australia Pty Limited 100% 100% Australia Recruitment SThree Austria GmbH 100% - Austria Recruitment Computer Futures Solutions NV 100% 100% Belgium Recruitment Huxley Associates Belgium NV 100% 100% Belgium Recruitment SThree Services NV 100% 100% Belgium Recruitment SThree Belgium NV 100% 100% Belgium Recruitment Specialist Staffing Solutions Recrutamento Ltda 100% 100% Brazil Dormant SThree Canada Limited 100% 100% Canada Recruitment SThree SAS 100% 100% France Recruitment SThree Holdings GmbH 100% 100% Germany Holding company SThree GmbH 100% 100% Germany Recruitment SThree Arbeitnehmerüberlassung GmbH 100% 100% Germany Recruitment SThree Limited 100% 100% Hong Kong Recruitment SThree India Private Limited 100% 100% India Dormant SThree Staffing Ireland Limited 100% 100% Ireland Recruitment SThree Ireland Dollar Limited 100% - Ireland Holding company SThree K.K. 100% 100% Japan Recruitment SThree Finance Euro S.à r.l. 100% 100% Luxembourg Holding company SThree Dollar S.à r.l. 100% - Luxembourg Holding company SThree S.à r.l. 100% 100% Luxembourg Recruitment SThree Finance Dollar S.à r.l. - 100% Luxembourg Liquidated Progressive Global Energy Sdn. Bhd. 49% 49% Malaysia Recruitment SThree Holdings BV 100% 100% Netherlands Recruitment Huxley BV 100% 100% Netherlands Recruitment SThree Interim Services BV 100% 100% Netherlands Recruitment Progressive Global Manpower Services Limited 100% 100% Nigeria Under liquidation SThree Norway AS 100% 100% Norway Dormant SThree Qatar LLC 100% 100% Qatar Under liquidation SThree LLC 100% 100% Russia Under liquidation SThree Pte. Ltd. 100% 100% Singapore Recruitment SThree Switzerland GmbH 100% 100% Switzerland Recruitment SThree Holdings (Thailand) Company Limited 49% 49% Thailand Dormant Progressive Global Energy Manpower Limited 100% 100% Thailand Dormant Cavendish Directors Limited* 100% 100% UK Dormant SThree UK Holdings Limited* 100% 100% UK Holding company SThree Overseas Holdings Limited* 100% 100% UK Holding company SThree UK Management Limited* 100% 100% UK Holding company SThree Overseas Management Limited* 100% 100% UK Holding company SThree UK Operations Limited* 100% 100% UK Holding company SThree Finance Limited* 100% 100% UK Support services
130 FINANCIAL STATEMENTS SThree plc LIST OF SUBSIDIARIES
Full list of SThree plc’s subsidiaries as referenced in note 12 is as follows:
Country of Principal 2016 2015 incorporation activities SThree IP Limited* 100% 100% UK Support services SThree Management Services Limited* 100% 100% UK Management services SThree Partnership LLP 100% 100% UK Recruitment Huxley Associates Global Limited 100% 100% UK Recruitment Progressive Global Energy Limited 100% 100% UK Recruitment Progressive Global Energy Kurdistan Limited 100% 100% UK Recruitment Progressive GE Limited 100% 100% UK Dormant Huxley Associates Limited 100% 100% UK Under liquidation Huxley Associates Banking & Finance Limited 100% 100% UK Under liquidation Orgtel Contract Limited 100% 100% UK Under liquidation SThree Staffing UK Limited 100% 100% UK Under liquidation SThree Staffing France Limited 100% 100% UK Under liquidation Specialist Staffing Holdings Inc 100% 100% USA Holding company Specialist Staffing Solutions Inc 100% 100% USA Recruitment Specialist Staffing Services Inc 100% 100% USA Recruitment Newington International Inc 100% 100% USA Recruitment Progressive Global Energy Inc 100% - USA Recruitment
* Directly held subsidiaries. All other subsidiaries are indirectly held.
SThree plc FINANCIAL STATEMENTS 131 FINANCIAL INFORMATION 5 YEAR FINANCIAL SUMMARY
All figures are reported figures before exceptional items in £’m unless stated otherwise.
30 November 30 November 1 December 25 November 27 November 2016 2015 2014 2013 2012
FINANCIAL PERFORMANCE Revenue 959.9 848.8 746.9 634.3 577.5 Gross profit 258.7 235.7 218.2 199.8 205.3 Operating profit 37.8 38.4 29.8 21.2 25.1 Total assets 231.5 204.9 203.4 160.0 168.0 Total equity 75.7 59.4 51.3 51.6 61.9 Net cash/(debt) 10.0 6.2 (9.9) 8.7 28.3 Cash from operations 43.1 60.3 20.1 9.5 32.7
FINANCIAL RATIOS Conversion ratio (%) 14.6 16.3 13.7 10.6 12.2 Cash conversion (%) 95.0 134.4 47.8 80.0 88.0 Basic EPS (pence) 21.2 20.8 16.3 9.1 14.1 Dividends per share (pence) 14.0 14.0 14.0 14.0 14.0
OPERATIONAL STATISTICS Average total headcount* 2,675 2,607 2,487 2,228 2,234 Average sales headcount* 2,113 2,086 2,002 1,736 1,663 Active contractors at year end 9,078 8,412 7,573 5,791 5,122
*2016 and 2015 are based on Full Time Equivalents.
132 5 YEAR FINANCIAL SUMMARY SThree plc SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
2016
30 NOVEMBER Financial year end
2017
23 JANUARY Annual results for the year ended 30 November 2016
17 MARCH Q1 Trading Statement
20 APRIL Annual General Meeting
16 JUNE Trading update for the six months ended 31 May 2017
24 JULY Interim results for the six months ended 31 May 2017
15 SEPTEMBER Q3 Trading Statement
15 DECEMBER Trading update for the year ended 30 November 2017
FINANCIAL CALENDAR 133 SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
Shareholders with enquiries relating do if a share certificate is lost, as minute plus your phone to their shareholding should well as download forms in respect company’s access charge; lines contact Capita Asset Services. of changes of address, dividend are open 9.00am – 5.30pm Mon to Alternatively, you may access mandates and share transfers. Fri) or +44 371 664 0300 (Non UK) or your account via Shareholders who would prefer to register online at: www.capitashareportal.com, but view documentation electronically www.capitashareportal.com. will need to have your investor can elect to receive automatic There is no fee for using this service code available when you first log notification by e-mail each time and you will automatically receive in, which can be found on your the Company distributes confirmation that a request has dividend voucher, share certificate documents, instead of receiving a been registered. Should you wish or form of proxy. The online facility paper version of such documents, to change your mind or request a also allows shareholders to view by registering a request via the paper version of any document their holding details, how to register registrar by calling 0871 664 0300 in the future, you may do so by a change of name or what to (from UK – calls cost 12p per contacting the registrar.
Potential Targeting of Shareholders Companies have become aware advice, offers to buy shares at a • If you deal with an unauthorised that their shareholders have discount or offers of free company firm, you will not have access received unsolicited phone calls or reports. If you receive any to the Financial Ombudsman correspondence concerning unsolicited investment advice: Services or Financial Services investment matters. These are • Make sure you get the correct Compensation Scheme. typically from overseas based name of the person and • Any approach from such brokers’ who target UK shareholders organisation. organisations should be reported offering to sell them what often • Check the FCA Register at to the FSA using the share fraud turn out to be worthless or high www.fca.org.uk/register to reporting form at risk shares in US or UK investments. ensure they are authorised. www.fca.org.uk/scams. You can They can be very persistent and also call the Consumer Helpline • Use the details on the FCA extremely persuasive and a 2006 on 0800 111 6768. Details of Register to contact the firm. survey by the Financial Services share dealing facilities that the Authority (FSA) reported that the • Call the FCA Consumer Helpline Company endorses will only be average amount lost by investors on 0800 111 6768 if there are no included in publications issued is around £20,000. It is not just the contact details on the Register by the Company. novice investor that has been or you are told they are out duped in this way; many of the of date. More detailed information on victims had been successfully • The FCA also maintains on its this or similar activity can be investing for several years. website a list of unauthorised found on the FCA website Shareholders are advised to overseas firms who are targeting, www.fca.org.uk/consumer be very wary of any unsolicited or have targeted, UK investors.
134 SHAREHOLDER INFORMATION SHAREHOLDER INFORMATION
ADR Information For US investors, the Company has Mailing Address: For the issuance of ADRs please set up a Level One ADR facility, BNY Mellon Shareowner Services contact: under the ticker symbol ‘SERTY’. P.O. Box 30170 London: Damon Rowan BNY Mellon acts as both ADR College Station, TX 77842-3170 Tel: +44 207 163 7511 depositary bank & registrar for Overnight Mail: E-mail: damon.rowan@ this facility. For further information, BNY Mellon Shareowner Services bnymellon.com please visit the website: 211 Quality Circle – Suite 210 www.adrbnymellon.com and New York: Margaret Keyes College station, TX 77845 search for the SThree profile page. Tel: +1212 815 6915 Holders can also access Customer service: E-mail: margaret.keyes@ information by writing or calling: Tel: 1 888 269-2377 bnymellon.com (from outside the US Tel: 001 201 Website: www.adrbnymellon.com 680-6825) E-mail: shrrelations@ cpushareownerservices.com
Share Price Information Information on the Company’s share price can be found via: www.sthree.com.
Share Dealing Service Capita Share Dealing Services provider. Calls outside the United Alternatively log on to provide a telephone and online Kingdom will be charged at the www.capitadeal.com. (Capita share dealing service for UK and applicable international rate. Share Dealing Services is a trading EEA resident shareholders. To use Lines are open between 8.00am – name of Capita IRG Trustees this service, shareholders should 4.30pm, Monday to Friday Limited which is authorised and contact Capita, Tel: 0371 664 0445 excluding public holidays in regulated by the FSA). - calls are charged at the standard England and Wales. geographic rate and will vary by
Dividend Re-Investment Plan (DRIP) (Non-Sponsored) For any shareholders who wish to shares. Any shareholder requiring Lines are open between re-invest dividend payments in further information should contact 9.00am – 5.30pm, Monday to Friday additional shares of the Company, Capita on 0371 664 0381 - calls excluding public holidays in a facility is provided by Capita are charged at the standard England and Wales. IRG Trustees Ltd in conjunction geographic rate and will vary by Email: [email protected] with Capita Asset Services. Under provider. Calls outside the United this facility, accrued dividends Kingdom will be charged at the are used to purchase additional applicable international rate.
Sharegift ShareGift (reg charity no. 1052686) make it uneconomic to sell. Website: www.sharegift.org operates a charity share donation Tel: 0207 930 3737 Details of the scheme are scheme for shareholders with small available from: parcels of shares whose value may
SHAREHOLDERINFORMATIOM 135 SHAREHOLDER INFORMATION
COMPANY INFORMATION & CORPORATE ADVISORS
Executive Directors Financial PR Group Company Gary Elden Citigate Dewe Rogerson Secretary & Chief Executive Officer 3 London Wall Buildings Registered Office London Wall Alex Smith Steve Hornbuckle, London Chief Financial Officer Group Company Secretary EC2M 5SY City Place House Justin Hughes 55 Basinghall Street Chief Operating Officer, London CEO, APAC & ME Auditors (FY 2016) EC2V 5DX Steve Quinn PricewaterhouseCoopers LLP Email: [email protected] CEO, Americas 1 Embankment Place London WC2N 6RH Company Number Compliance Hotline 03805979 Tel: 0808 234 7501 Web: www.integrity-helpline. Registrars com/sthree.jsp (Ordinary Shares) Contact Details Capita Asset Services Tel: 0207 268 6000 The Registry Fax: 0207 268 6001 Financial Advisors 34 Beckenham Road Email: [email protected] & Stockbrokers Beckenham Web: www.sthree.com UBS INVESTMENT BANK Kent 1 Finsbury Avenue BR3 4TU London Tel: (UK) 0871 664 0300 EC2M 2PP Tel: (Non UK) +44 371 6640 300 Email: shareholderenquiries@ capita.co.uk LIBERUM CAPITAL Web: Ropemaker Place, Level 12 www.capitaassetservices.com 25 Ropemaker Street *Calls cost 12p per minute plus your phone London company’s access charge and calls outside the UK will be charged at applicable international EC2Y 9LY rates. Lines are open 9:00 am - 5:30 pm Mon - Fri, excluding public holidays in England and Wales.
136 COMPANY INFORMATION & FINANCIAL ADVISORS
COMPUTER FUTURES HUXL XLEY REAL STAFFING PROGRES ESSIVE ORGTEL JP GRAY N NEWINGTON INTERNATIONAL MADISON B N BLACK GLOBAL ENTERPRISE P TNERS HYDEN MADISON BLACK RES HUXLEY REAL STAFFING PROGRESS ORGTEL JP GRAY NEWINGTON INTERNATIONAL GLOBAL ENTERPRISE PARTNERS HYDEN JP PRISE PARTNERS HYDEN COM COMPUTER FUTURES HUXLEY STAFFING PROGRESSIVE O COMPUTER FUTURES HUXLEY TON INTERNATIONAL MADISON B LACK GLOBAL ENTERPRISE E PARTNERS HYDEN COMP PUTER FUTURES HUXLEY R EAL STAFFING PROGRESSIV IE ORGTEL JP GRAY NEWINGTON