Replacement Final Results
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SThree (STEM)
 A number of non-material typographical changes have been made to the Final Results announcement released on 27.01.2020 at 07:00, specifically a number of figures in the Consolidated Income Statement.  SThree plc ("SThree" or the "Group")   Final results for the year ended 30 November 2019   STHREE ANNOUNCES RECORD REVENUE AND OPERATING PROFIT SThree, the only global pure play specialist staffing business focused on roles in STEM (Science, Technology, Engineering and Mathematics), is today announcing its final results for the year ended 30 November 2019.  FINANCIAL HIGHLIGHTSÂ
 (1) 2019 figures exclude the impact of £2.3 million in net exceptional strategic restructuring costs and CEO change costs. (2) 2018 figures exclude the impact of £6.4 million in exceptional strategic restructuring costs. (3) Variance compares adjusted 2019 against adjusted 2018 to provide a like-for-like view. (4) Variance compares adjusted 2019 against adjusted 2018 on a constant currency basis, whereby the prior financial year foreign exchange rates are applied to current financial year results to remove the impact of exchange rate fluctuations. (5) Net cash/(debt) represents cash & cash equivalents less borrowings and bank overdrafts. ÂÂHIGHLIGHTS Â
 * In constant currency      Mark Dorman, CEO, commented: "I am pleased to be reporting today on a record year for the Group, during which we delivered an adjusted operating profit of £60.0m. This performance is a result of the hard work delivered throughout the business over the period. Our focus on STEM and flexible working is delivering good overall growth despite a challenging trading background. Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest in our people, data and technology as we execute against our focused strategy as outlined at our recent Capital Markets Day. Whilst early in the year, we can see that broader macro-economic and political uncertainties may well persist, and the trading environment remains similar to Q4. We have the right strategy, are in the right sectors and geographies, and our Contract focus will allow us to drive another year of progress towards our ambitions. We have a unique position at the centre of long-term secular global trends and are focused on the right markets which will stand us in good stead for the future. In addition, we are building a platform business with the systems to increase the effectiveness of our execution. The opportunity for us is significant, and we are very well placed to capitalise on it, driving sustainable value for all of our stakeholders."     SThree will host a live presentation and conference call for analysts at 0930 GMT today. The conference call participant telephone details are as follows:  Dial in:  0800 358 9473 Call passcode: 90161391#  This event will also be simultaneously audio webcast, at http://bit.ly/STEM_FY19. Please note that this is a listen only facility. An archive of the presentation will be available via the same link following the event.  SThree will issue Q1 trading update on Monday 16 March 2020.  Enquiries:  SThree plc      020 7268 6000 Mark Dorman, Chief Executive Officer Alex Smith, Chief Financial Officer Shaun Zulafqar, Senior Company Secretarial Assistant  Alma PR       020 3405 0205 Rebecca Sanders-Hewett    SThree@almapr.co.uk Hilary Buchanan   Notes to editors  SThree is the only global pure play specialist staffing business focused on roles in STEM (Science, Technology, Engineering and Mathematics). It brings skilled people together to build the future through the provision of specialist Contract and Permanent services to a diverse client base of over 9,000 clients. From its well-established position as a major player in the Technology sector, the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.  Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Progressive, Computer Futures, Huxley Associates and Real Staffing Group. The Group has circa 3,100 employees in sixteen countries.  SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STEM and also has a USA level one ADR facility, symbol SERTY.    Important notice  Certain statements in this announcement are forward looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward-looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Data from the announcement is sourced from unaudited internal management information. Accordingly, undue reliance should not be placed on forward looking statements.ÂÂÂÂÂÂÂÂCHairman's statement ÂI'm proud that SThree delivered in 2019 a record performance in terms of revenue, profitability and market penetration as we focused more tightly on providing our customers with the best STEM talent, our candidates with the opportunity to fulfil their ambitions and potential, and our employees with engaging and rewarding work. This is all the more impressive given a complex and somewhat unpredictable macro-economic and political backdrop in some of our main markets.Our purpose remains compelling and unchanged: bringing skilled people together to build the future. It is this purpose that governs our responsibility to all stakeholders. We have spent considerable effort and attention during the year to ensure that we are closer to our customers and candidate communities, and this remains a key future priority of the Group, together with enhancing our offering to employees and communicating better with our investors. We are pleased about the role that our business plays in wider society and have re-energised our CSR activities and implemented new initiatives under our ESG strategy. It is also significant that we have set ourselves a bold new target of reducing our absolute carbon emissions by 20% by 2024, helping to address one of the world's key challenges.The achievements in the year are in no small part the result of our exceptional, committed and entrepreneurial team. As signalled last year, Gary Elden stepped down as CEO in March after nearly 30 years in the business, the last six of them as CEO. Gary was responsible for setting a number of the business foundations we have in place today and which provide an enviable springboard for future growth. We wish him all the best in his new endeavours and thank him for his leadership and direction. I would also like to thank Justin Hughes, who stepped down as COO in July, for his significant contribution over the last 25 years.We were pleased to welcome Mark Dorman as CEO in March, bringing to SThree a wealth of experience in scaling international business service operations, delivering compelling strategies and leading great teams. He has already shown himself to be an ambitious and insightful leader, and I look forward to continuing to work with him. The Board and I are confident that his relentless focus on value creation for all our stakeholders will be indispensable as we scale further. During the year we also made a number of significant appointments to our leadership teams around the world, bolstering our capabilities as we take the business into its next stages of growth.In November we held our Capital Markets Day in London to update investors on our vision, strategic evolution and blueprint for success. Our huge market opportunity is also clear, and we are proud to have crystallised our strategy and pathway to sustainable future growth.On behalf of the Board, I would like to express our thanks for the tireless effort our colleagues put in every day to make SThree a trusted partner to our many customers and candidates. It is their drive and dedication to our purpose that elevates SThree as a global leader and partner of choice. It has been a pleasure for the Board and individual Board members to spend time visiting a number of our offices over the year, seeing the work being delivered across our platform, from our excellent operations and technology activities in Glasgow to the local market leadership we enjoy in Amsterdam.Corporate governance remains a priority and focus of the business and we have set ourselves FTSE 250-appropriate targets and aspirations. We are also focused on initiatives to enhance diversity and inclusion across our organisation and remain committed to ensuring that all of our employees' voices are heard at every level.A sense of excitement for the future is palpable across SThree. Our recently refined and newly articulated strategy provides us with confidence in our long-term success, supported by strong structural market drivers around STEM and flexible working, a great team and a corporate purpose that seems ever more relevant to meet many of the world's future challenges and opportunities.  CHIEF EXECUTIVE OFFICER'S STRATEGIC REVIEW ÂThe only global pure play STEM specialist[1] SThree is at the centre of STEM and this has enabled us to deliver a robust financial performance in what has been one of the most uncertain macro-economic and political periods since 2008. Over the year we have built on the strong foundations that were in place when I took over. Our continued focus on STEM, and our scale and global footprint in the right markets, combined with our ability to provide a full staffing solution for all our clients' needs means that we have delivered an all-time record profit performance.Group net fees were up 5%* in the year. The growth was largely delivered, as expected, through our key territories of Continental Europe and USA; the former was driven by our market-leading businesses in Germany and the Netherlands which together saw growth of 8%*, whilst the latter was up 9%*. We also made improvements in our other target markets, including a stand-out performance from our growing team in Japan, up 43%*. From a sector point of view, we saw robust growth across the Group, with Technology up 7%*, Life Sciences up 5%*, and Energy & Engineering up 14%*.This performance is a result of the hard work delivered both strategically and operationally, and we continue to move closer to delivering on our vision of being the number one science, technology, engineering and mathematics ('STEM') recruiter in the best STEM markets.ÂBringing skilled people together to build the futureIt is clear to see our purpose of bringing skilled people together to build the future in action through the work that has been delivered in the period. The wide range of placements that we have made include, for example, a Regulatory Affairs Consultant, who ensures life-changing medical devices meet the highest possible safety standards before going to market, a Commissioning Manager whose planning and execution of key renewable energy projects is helping to make the world a greener place, as well as a significant number of solar technicians who are providing homes and businesses across the US with environmentally-friendly solar energy. We provide a company's most important asset - its people - to the businesses that are at the centre of some of the biggest challenges going on in the world today. We are very pleased to be a true partner to those businesses, helping them build the future.The scale of the growth and change as a result of the need for STEM skills going forward should not be underestimated. Addressing some of the biggest issues such as climate change and the huge demographic shifts is just the start. Skilled people are needed to solve these global challenges and drive the future. This creates a huge opportunity as many of those skills, while still in high demand, are also in short supply, irrespective of where we are in terms of economic cycle.We truly understand the dynamics of our markets, both as they are now and where they are headed. Our knowledge of the STEM markets, the needs of businesses operating within them and the niche, local talent we have built trusted relationships with is unrivalled. This is supported by our ability to deliver a full set of resourcing solutions to our clients, whether that be Contract or Permanent, to support with incoming legislation, and to develop supply though the cultivation of candidate communities.Alongside this, there are two factors driving the demand for flexible working. There is a generation of people entering the global labour force that have a very different view of the workplace. Millennials and Generation Z, particularly those with STEM skills, see their career through the lens of the various projects that they work on rather than the companies they work for. At the same time, more and more companies are looking for contingent workers and flexible workforces, whether on large scale capital projects in Engineering or Life Sciences, or whether they're looking to upgrade their technology and their innovation sphere project by project. These dynamics continue to drive the need for the right talent in a supply constrained environment.Our ability to find great talent and to curate that talent to make sure that it matches the right opportunity is the reason we are able to benefit from both of these trends. We are expert in engaging with both the client and the candidate all the way through a project, standardising our processes across the globe and ensuring the client and candidate come to our teams for their solutions going forward, making it a truly repeatable process. Our scale allows us to deliver this offering across the globe, in an increasingly complex regulatory environment for our clients. Our scale, expertise and culture make us the partner of choice.ÂA scalable platform business able to drive further growthA key milestone of the year has been the development and articulation of a refocused strategy for the business that sets us up well to scale the business effectively and deliver consistently into the future.The long-term secular trends towards more flexible working manifests itself differently in the 70 different jurisdictions in which we place talent. In order to meet this opportunity, SThree has built a set of scalable service offerings, which are recurring in nature and which we deploy globally, allowing for long-term sustainable growth.One of the important defining characteristics of SThree is our entrepreneurial spirit. It is truly a pleasure to be working with a team that generates an abundance of new opportunities and good ideas. Our future success will be reliant on our ability to channel those ideas and ensure we choose the right opportunities to focus on. As such, we have implemented a 'managing for value' programme process which assesses the economic value that would be created by each idea, and allows us to rank them by the economic rate of return. This allows us to create real structure to help us execute our strategy across five areas of focus - our current geographies and markets, investment in sales and marketing, the use of data to enhance our decision making, to help drive our business and innovation, while building on our operational capabilities.Alongside the use of data to inform our business decisions we are also able to utilise valuable exhaust data from the activity across our business. We understand what is going on in the STEM markets through the work we do, and this knowledge enables us to have the right people in the right place to help our clients. An example of this is the use of data points, internal and external, in order to select the optimum industry/skill base to invest in. This allows us to maximise productivity of our consultants and scale appropriately within an industry/skill base.We maintain our focus on embracing new technologies and believe that this should be central to everything we do. This will drive efficiency across our scalable, platform business and support the delivery to our customers. We will continue to capitalise on trends to remain relevant to our customers in a new digital era, whether that being new ways of working or incremental improvements on an ongoing basis.Building on our operational capabilities will underpin our execution going forward. Our creation of the Centre of Excellence in Glasgow was a foundational step in building first class global operations to create operational scale and leverage. From that foundational step we'll continue to invest as we move forward, enhancing our platform for growth.Our six previous strategic pillars have been refined and we are now focused on executing across four key elements. Our new strategic pillars are the guideposts of how the business will be driven going forward, and reflect how SThree will build upon its unique position in the market:ï‚·Â Â Â Â Â Â Â Â Â Leveraging our position at the centre of STEM to deliver sustainable value to our candidates and customersï‚·Â Â Â Â Â Â Â Â Â Create a world class operational platform through data, technology and infrastructureï‚·Â Â Â Â Â Â Â Â Â To be a leader in the markets we choose to serveï‚·Â Â Â Â Â Â Â Â Â Find, develop, retain great peopleÂThe right team to deliver on the opportunityWe have a truly great team with a wide breadth and depth of skills across our organisation, whether found in our experienced, long-tenured team that have been delivering the Group's robust performance over prior years, or in our experts from outside the industry that have joined to build upon the Group's foundations. Both have been working tirelessly over the year to ensure the business is in its best position to capture the opportunity ahead of us.We were pleased to appoint Matthew Blake as Chief People Officer to develop and lead the Group's people strategy, and Kate Holden as Chief Strategy and Development Officer to oversee the strategic planning process and successful delivery of SThree's Group-wide strategic programmes.Our people truly are our lifeblood and we are focused on creating the right culture and environment for our people to thrive. A full people strategy is being implemented, focused on driving engagement, shaping culture, developing talent, organisational design, reward and governance, risk and compliance. Truly reflecting the customer and candidate pools we serve is also key and we are focused on building diversity throughout the organisation, from top to bottom. To this end, we are building out our Diversity and Inclusion ('D&I') strategy which will set out our ambition to become leaders of D&I in the staffing industry. Aligned with our broader Group strategic themes, our D&I commitments will centre around initiatives such as building communities, internal and external networking, data monitoring and data-based decision making, policy development, communication, talent management and leadership development. Alongside this, we are building our Learning & Development ('L&D') strategy through the creation of learning academies, and strengthening digitalisation (delivering learning the way our people want to learn). Supporting this is the identification and development of the new L&D target operating model, structure and ways of working.ÂOutlook: at the centre of STEM"Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest in our people, data and technology as we execute against our focused strategy as outlined at our recent Capital Markets Day. Whilst early in the year, we can see that broader macro-economic and political uncertainties may well persist, and the trading environment remains similar to Q4. We have the right strategy, are in the right sectors and geographies, and our Contract focus will allow us to drive another year of progress towards our ambitions.We have a unique position at the centre of secular global trends and are focused on the right markets which will stand us in good stead for the future. In addition, we are building a platform business with the systems that will increase the effectiveness of our execution. The opportunity for us is significant, and we are very well placed to capitalise on it, driving sustainable value for all of our stakeholders."ÂÂÂCHIEF SALES OFFICER'S REVIEWÂ2019 saw growth for the Group with net fees up 5%*. Our Contract division, which represents 74% of the Group, saw strong growth of 8%* offset by a decline in Permanent down 3%* as anticipated.[2]  Global pure play STEM specialist SThree is the only global, pure play STEM specialist recruiter which makes our business unique. This enables us to service our customers, both candidates and clients, and achieve our purpose of bringing skilled people together to build the future. Our unique scalable business can holistically be viewed in five key distinct sections. 1. Customer Our customers are split between SME to mid-size organisations and large enterprise organisations. Although it can vary regionally, our core business sits within SME to mid-size which accounts for circa 82% of our business. 2. Skills We place 100% STEM skills, exclusively, no matter what sector. As a result, we are better insulated against the worst vagaries of the broader cycle. Our market intelligence tool uses 32 internal and external data points and enables us to identify what skills and markets to invest in. 3. Resource options We provide our customers with a full solution split into three distinct options, Freelance contractor, Employed contractor, and Permanent. Our blueprint programme provides a standard service globally with options to fit regional needs. 4. Product type Alongside our complete standard offerings, we also provide enhanced contract services to our customers. This provides additional value above and beyond our standard service and supplements the clients' existing workforce and demanding project requirements. 5. Service and delivery In order to deliver to our customers in the most effective way we use a local model and a near shore model. Local delivery model uses technical market and sector specialists to build strong customer relationships with primarily SME and mid-market organisations. Near shore delivery model utilises our key account managers to provide scaled delivery to enterprise organisations. We automate the process using technology and utilising AI to service the client efficiently.  Performance in 2019[3] The strategy to focus growth investment towards Contract in order to align SThree with the key drivers in its key markets continues to bear fruit with the mix of Contract net fees increasing to 74% of total Group net fees, up from 72% in 2018. Total net fees grew by 5%* with strong performance in Contract partially offset by a decline in Permanent.  Â
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  Regional SThree has well established and, in many cases, leading positions in the best STEM staffing markets across the globe. We are a well-diversified business with 86% of our net fees now generated outside of the UK & Ireland ('UK&I'). We are pleased to report that 2019 was another year where the majority of our regional businesses reported growth ahead of their domestic averages. Performance in Continental Europe was pleasing with growth of 8%* in net fees. This is despite having strong prior year comparatives with net fees growing 20%* in 2018. Within Continental Europe, DACH grew 10%* and Benelux, France & Spain grew 4%*. Our key aims in this region are to be the number one in the STEM space in both Germany and the Netherlands. The Netherlands, which is a key business hub for many multinational companies, grew 8%* against strong prior year comparatives of 25%*. Germany continues to deliver strong growth with net fees up 9%*. The expansion of our Contract service, to include Employed Contractor Model in 2017, provided our German business with further opportunities for growth. We also opened two new offices in Germany located in Hanover and Nuremburg, which enables us build towards our aim to be the number one in the STEM space. Our business in USA saw robust growth of 9%* in net fees. This is on the back of strong prior year growth of 8%*. We believe the infrastructure that we have in place, alongside our experienced management team leaves us in a strong position to grow our net fees going into the new year and target an increased market share. The UK&I was challenging in 2019 as the uncertainty surrounding Brexit and wider political environment continues to impact the region. Net fees for the year declined 9%* year on year. The UK is a mature recruitment market and is seeing slower industry growth than other geographies, however, it remains a strategic priority for the Group. Following the restructuring of Permanent division in 2018, we appointed a new Managing Director in Q4 2019 to positively impact performance. Our Asia Pacific & Middle East ('APAC & ME') business delivered growth of 12%* in the year. This was driven largely by our excellent Japan business which grew 43%*. Japan is a very important market for the Group where we have a small but fast-growing business providing the Group with substantial opportunity for further growth.  Â
    Sectors Our largest sector, Technology, represents 45% of the Group's total net fees and net fees grew by 7%* in the year. All our regions other than UK&I experienced growth in this sector. Life Sciences grew net fees by 5%* in the year. USA, our largest region for this sector, grew net fees by 11%*. UK&I delivered robust growth of 4%*, offset by 2%* decline in Continental Europe. Banking & Finance was a challenging sector for the Group with net fees declining by 13%*. We saw a decline in UK&I of 22%* driven by the uncertainty surrounding Brexit. Continental Europe and USA both declined in the year down 10%* and 21%*, respectively. We saw strong growth in our Energy & Engineering sector, with net fees up 14%*. This was driven by USA which grew 38%* and Continental Europe which grew 10%*. Â
 Focus on Contract Across multiple geographies there is an increasing shift towards flexible employment, and we believe our focus on STEM provides us a unique opportunity to capitalise on this shift. It is the Group's strategy to invest and grow our Contract offering. Our average Contract headcount was up 10% year on year for the Group with all regions growing double digit with the exception of UK&I which grew 4%. Our increased weighting towards Contract means we are more resilient to changing market conditions and provides us with stronger and more sustainable profits. Our Freelance contractor model performs well across all our regions and the popularity of our Employed contractor model leaves us well placed to drive further growth.    BUSINESS REVIEWÂDACH (Germany, Austria and Switzerland) (32% of Group net fees) DACH, our largest region, enjoyed a strong 2019 with growth across Contract and Permanent. Â
           Key developments in the year ï‚·Â Â Â Â Â Â Â Â Â Opening of two new offices in 2019ï‚·Â Â Â Â Â Â Â Â Â Winner of 'Mittelstand Deutschland Top Employer 2019'ï‚·Â Â Â Â Â Â Â Â Â Continued investment in headcount up 13%ï‚·Â Â Â Â Â Â Â Â Â Double digit growth in net fees Overview 2019 was an encouraging year for our DACH region in terms of net fee growth. Total net fees grew strongly and were up 10%* despite having strong prior year comparatives (2018: 21%*).[4] Our employee proposition launched in 2018 was fully implemented for the year and we have continued to retain and grow our talent. 2019 saw the opening of two new offices in Germany, located in Nuremburg and Hanover. These are now fully operational with a strong leadership team driving the business. We developed a market intelligence tool allowing us to analyse the external market to ensure we are active in all the attractive and relevant spaces. Our Employed Contractor Model ('ECM') which we implemented in 2017, saw an 84% increase in volume in 2019. On top of that, we saw a strong growth rate within our top 20 accounts of 37% year on year.  2019 net fees performance DACH net fees grew 10%* in 2019 with our largest sector Technology growing 13%*. There was strong growth in Banking & Finance, up 19%* and Energy & Engineering up 11%*. Contract performance was very strong, up 14%* driven by our two largest sectors Technology and Energy & Engineering, up 13%* and 16%* respectively. Life Sciences was up 7%* and Banking & Finance up 34%*. Against some tough comparatives (2018: +19%*), Permanent saw growth of 5%*. Our biggest sector Technology grew 13%* on the prior year. Our other sectors saw a slowdown with Life Sciences down 11%*, Energy & Engineering down 11%* and Banking & Finance down 6%*.  2020 outlook The broader German economy is sensitive to global trade tensions and we witnessed a deterioration in business sentiment through the course of 2019. Despite these concerns, German domestic consumer spending remained solid. SThree's strengths lie in the Mittelstand, and here the backdrop is proving more resilient. The high shortage of specialist labour in Germany is continuing to be a challenge for employers, which points to supportive trading conditions in 2020. We exit the year with a strong contractor book, our largest ECM order book to date and a strong Permanent starter pipeline. In line with the Group strategy, we will continue to invest in DACH Contract division along with a focused investment in Permanent in the markets where we see the best opportunity for growth.   Benelux, France & Spain (26% of Group net fees) Benelux, France & Spain is the second biggest region after DACH and accounts for 26% of Group net fees. 2019 saw growth of 4%* in overall net fees, however, our Permanent business has been challenging. Â
   Key developments in the year
 Overview Benelux, France & Spain is the second largest region after DACH, representing 26% of the Group net fees. Despite softening macro-economic conditions, the region delivered a robust performance with net fees growth of 4%* in the year.[5] Growth was mainly driven by our ECM model, which grew by 31%* and now accounts for 23% of Contract net fees. Our clients favour this model as it mitigates legislative risks. We also continued our investment in building candidate communities of highly qualified, niche skilled STEM talent, so that we are in the position to deliver the best candidates to our long serving clients. Permanent had a challenging year. However, in line with Group strategy, we focused on increasing productivity per consultant in our niche core STEM markets and we already saw the impact as productivity increased by 3%.  2019 net fees performance Overall net fees for the region were robust and we saw growth of 4%* in the year. The Netherlands was the standout performer with growth of 8%*, supported by France which grew 3%*. Technology, our largest sector, had a strong performance in the year and grew 9%*. Contract performance for the region was strong with growth of 8%*. We saw double digit growth of 12%* in our biggest sector Technology. Energy & Engineering had a strong year with growth of 17%* and is now our second biggest sector. We saw good growth across the majority of our key countries with the Netherlands, up 10%* and France up 7%*. A small decline was reported in Luxembourg. Permanent was down across all our countries (overall down 13%*) except for Spain. Average Permanent headcount declined by 17% in the year.  2020 outlook With soft macro-economic conditions continuing in the region, there are signs that growth may slow down. In line with our Group strategy, we will continue to invest in growing Contract in scarce STEM markets, where we see market opportunity, and improving Contract and Permanent productivity. We are confident that with our well-diversified business in countries and sectors, combined with our highly experienced leadership team, we will be able to balance the selective investments for long term growth while managing the softer market conditions.   USA (22% of Group net fees) During 2019, our US business continued to show robust growth with net fees up 9%*. The performance of our Contract division was particularly strong, delivering 17%* growth in net fees. Â
  Key developments in the year
 Overview USA is our third largest region and represents 22% of Group net fees. Against a backdrop of softening performance from USA competitors, our USA business delivered accelerated growth in net fees while balancing the business further towards Contract. A very strong Contract performance was driven by our ongoing investment in the candidate communities of scalable, supply-constrained STEM markets which continued to drive customer value, resulting in accelerating growth and improving gross margins. We also continued to benefit from our expertise in the increasingly complex regulatory environment relating to contingent workforce management in USA, as customers try to navigate these risks. Our mature ECM product now has more than 1,200 contractors employed on assignment across 44 US states. Meanwhile, the successful pilot of our Enhanced Employment Services product with Engineering sector clients resulted in a significant increase in gross margins. While Permanent performance declined, our new Permanent management team has refocused the business on scalable, supply-constrained STEM markets and built headcount to provide a platform for growth in 2020. Further headcount growth will be supported by our new Vice President of Talent Acquisition, who is strengthening our graduate recruiting platform, and by our multi-award winning induction program.  2019 net fees performance USA delivered a strong performance in 2019 with net fees growing 9%*. Energy & Engineering was the standout performer from a sector perspective with growth of 38%* against strong prior year comparatives. We continued to build on our customer portfolio, our strong position in renewable energy and broadened our product offering. Life Sciences, our largest sector in the region, grew 11%*, and Technology grew 9%*.[6] Contract performance was very strong in 2019, with growth of 17%*. We saw a double-digit growth in our three biggest sectors. Life Sciences up 19%*, Energy & Engineering up 45%*, and Technology up 12%*. Average headcount in Contract increased by 13%. Our Permanent business saw a decline of 11%*, as the new management team tightened the focus on niche skill sets hired into our biggest opportunity markets to build a platform for growth.  2020 outlook With a strong exit rate in number of contractors, especially in Energy & Engineering, Life Sciences and Technology, we expect continued growth into 2020. We expect Permanent to return to growth in 2020 as a result of the previously mentioned measures implemented in 2019. We are confident that we have the right team and structure to deliver a high-quality service to our clients and continue to penetrate the largest recruitment market in the world. Moreover, we have a highly scalable platform for future growth in the US based on a clear and differentiated customer value proposition, mature product offering and infrastructure to support scale. We remain agile to cater for any risks or opportunities that are posed by the market.          UK&I (14% of Group net fees) Macro-economic and political uncertainty impacted performance during 2019 with net fees down 9%*. UK&I remains a strategic priority for the Group and Contract saw growth in headcount of 4%. Â
   Key developments in the year
 Overview 2019 was a challenging year for the region impacted by the continued uncertainty around Brexit and larger political environment. Following the restructuring of our Permanent division in 2018, we appointed a new Managing Director in Q4 2019 to positively impact performance. As a result, we refocused our leadership team to a regional delivery model. While trading conditions were challenging, we saw success in our Life Sciences business which grew in the year, alongside our robust public sector business. The reform of IR35 in the private sector will be a significant change for clients and contractors. We have been actively preparing our clients and candidates for the impact of this regulatory change with a number of initiatives, and with our experience we believe we are well placed to minimise any impact.  2019 net fees performance Challenging market conditions in the UK&I resulted in a net fees decline of 9%*. Although well diversified from a sector perspective, tougher market conditions meant that fees were down in most sectors except for Life Sciences, which was up 4%*.[7] UK&I Contract net fees were down across most of our sectors with more competitive spaces such as Technology down 6%*, Energy & Engineering down 8%* and Banking & Finance down 19%*. Life Sciences had a robust performance in the year with net fee growth of 2%*. Permanent net fees were impacted by a slowdown in Technology and Banking & Finance which were down 30%* and 32%*, respectively. Life Sciences was a standout performer from a sector perspective and grew 9%* with Energy & Engineering up 4%*. Permanent headcount was significantly reduced in 2018 as part of our move to a specialist hub and onshore delivery model. This has now been stabilised with headcount remaining at 2018 levels.  2020 outlook While Brexit continues to remain a material uncertainty for the UK economy, we remain confident that we are set up to maximise the market opportunity, with the existing customer base and sectors. Regional organisation enables us to execute more effectively on our strategy. IR35 intermediaries legislation applicable to private sector from April 2020 is starting to have an adverse impact on the UK business, but also gives us an opportunity to deliver fully compliant services to our clients and candidates. With our management team refocused on a regional delivery model we believe we are well placed to maximise opportunity in our second largest STEM market.   Asia Pacific & Middle East (6% of Group net fees) The region delivered a double-digit growth of 12%*, driven by excellent performance in Japan and strong performance in Dubai. Â
 Key developments in the year
  Overview 2019 was a very encouraging year for the region as we grew our net fees and invested in headcount. The continued growth in Japan, which saw average headcount grow 50%, was the highlight of the year. We were also very pleased with our business in Dubai which saw a strong double-digit growth in net fees. Australia reported a 9%* growth in Permanent net fees. 2019 was a bit more challenging year for our Singaporean business, which underwent a significant restructuring that set the platform for growth in 2020.  2019 net fees performance Total net fees for the region grew 12%* year on year. Our two largest sectors showed good growth within Technology, up 29%* and Banking & Finance, up 8%*. Energy & Engineering saw a small decline of 3%*.[8] Our Permanent division, which accounted for 57% of net fees, saw very good growth of 16%*. This was driven primarily by Japan which was up 42%*. Japan Permanent grew across all sectors, with Technology growing 52%*, Life Sciences up 30%*, and Banking & Finance up 29%*. Dubai saw growth of 7%* in Permanent and Australia grew 9%*. This was offset by a decline in Singapore, down 32%*. Our Contract business grew 6%* in the year. Dubai Contract was up 19%*, which was driven by a strong performance in Banking & Finance, up 87%*. This was supported by our small but growing Contract business in Japan which grew 53%*. Australia Contract was down in the year with net fees declining 7%*.  2020 outlook We will continue to invest in our Japanese Permanent business with planned investment in our operations and support functions as well as sales headcount.In Asia Pacific the demand for Technology skills is growing very fast. As a global pure play STEM specialist, we are well positioned against our competitors and occupy a position in the market that benefits from innovation and the ever-evolving technology market.With our office move in Dubai completed, we will continue to invest in Middle East Contract across both Energy & Engineering and Banking & Finance sectors.We will continue to maintain a market leading position in Permanent division, with particular focus on placing candidates at an executive level within Banking & Finance sector. CHIEF FINANCIAL OFFICER'S REVIEW ÂThe strength of our model has enabled us to deliver another year of strong performance in 2019.  Income statement Revenue for the year was up 7% to £1.35 billion on a reported basis and up 6% on a constant currency basis (2018: £1.26 billion). On a reported basis, net fees increased by 7%, and 5% on a constant currency basis, to £342.4 million (2018: £321.1 million). In constant currency, growth in revenue exceeded the growth in net fees as the business continued to remix towards Contract. Contract represented 74% of the Group net fees in the year (2018: 72%). This change in mix resulted in a marginal decrease in the overall net fees margin to 25.4% (2018: 25.5%), as Permanent revenue has no cost of sale, whereas the cost of paying a contractor is deducted to derive Contract net fees. The Contract margin increased marginally to 20.3% (2018: 19.9%). The reported operating profit was £57.7 million, up 22%. The adjusted operating profit was £60.0 million, up 11% year on year (2018: reported £47.5 million and adjusted £53.9 million). The adjusted operating profit excluded exceptional costs of £2.3 million that were incurred in the current year primarily in respect of the CEO changes and restructuring of senior leadership (2018: £6.4 million due to relocation of support functions). Our operating profit conversion ratio has increased by 2.1 percentage points to 16.9% on a reported basis and 0.7 percentage points to 17.5% on an adjusted basis (2018: reported 14.8% and adjusted 16.8%). The increase reflects strong trading performance, primarily in our international markets, and operational cost savings delivered from the restructuring of our support functions.  Exceptional costs ('adjusting items') In discussing the performance of the Group, comparable measures are used. This approach allows users of our financial statements to obtain a better understanding of the Group's operating and financial performance achieved from underlying activities. The following items of material or non-recurring nature were excluded from the directly reconcilable IFRS measures.  Restructuring Support function relocation In 2019, the Group recognised a net income of £0.1 million in relation to support functions restructuring. It comprised personnel costs of £0.3 million and property costs of £0.3 million, subsequently offset by the government grant income of £0.7 million. The total net costs recognised to date amounted to £12.9 million (2018: £13.1 million). This restructuring has realised cost savings in excess of £5.0 million per annum.  Senior leadership restructuring To continue to drive the Group growth plans and deliver on our ambition to be the number one in our chosen STEM markets, a number of key changes were made to the senior leadership structure (impacting UK&I, Benelux, France & Spain, and Middle East). These changes will drive further alignment between our key markets, leading to a well-governed and efficient regional structure. Changes to the senior leadership structure resulted in the exceptional charge of £1.2 million in the current year.  CEO change The costs associated with the departure of the previous Chief Executive Officer ('CEO'), Gary Elden, and the appointment of the new CEO, Mark Dorman, led to the recognition of an exceptional charge of £1.2 million in 2019. The total charge comprised contractual payments, recruitment and other professional fees, double running costs and relocation costs.  The Group alternative performance measures, used throughout this Annual Report, are fully explained and reconciled to IFRS line items in the Alternative Performance Measures section of the Annual Report.  Accounting changes On 1 December 2018, IFRS 9 Financial Instruments ('IFRS 9') and IFRS 15 Revenue from Contracts with Customers ('IFRS 15') became effective for the Group. IFRS 9 introduced new requirements for classification, recognition and impairment of financial assets. Overall, IFRS 9 had an immaterial impact on the Group and no retrospective adjustments were made. Under IFRS 9, the Group started to present changes in the fair value of all its equity investments in other comprehensive income, as these instruments are held for long-term strategic purposes. There were no changes to the Group's existing impairment methodology for trade receivables. IFRS 15 was adopted on the modified retrospective basis. Under IFRS 15, the recognition of contingent consideration, such as Contract accrued income, is recognised as revenue provided that it is highly probable that its significant reversal will not occur when the uncertainty associated with the contingent consideration is subsequently resolved. Historically, the Group's policy of estimating Contract accrued income resulted in certain amount of revenue being reversed. On 1 December 2018 the Group revised the way the Contract accrued income is estimated. This change resulted in a net post-tax adjustment of £2.3 million that reduced the opening balance of retained earnings on the date of initial application of IFRS 15. On 1 December 2019, the Group will adopt IFRS 16, a new lease accounting standard that requires to recognise a lease asset and lease liability for all contracts. The evaluation of the effect of adoption of the standard is substantially complete. On the date of initial application, we expect that the net assets will decrease by £0.8 million (a net result of an increase in total assets of £41.5 million offset by an increase in total liabilities of £42.3 million).  Operating costs Adjusted operating costs, excluding exceptional costs of £2.3 million (2018: £6.4 million), increased by 6% to £282.3 million (2018: £267.2 million). The increase was mainly driven by additional investment in total headcount (6% increase year on year), 3%* increase in personnel costs (an 8%* increase in salaries partially offset by a reduction in redundancy costs and share-based benefits), and £3.2 million additional spend on IT licenses.[9] Payroll costs represented 78% of our cost base. Average total headcount was up by 6% at 3,109 (2018: 2,926), with average sales headcount up 7%. The increase in average sales headcount was in response to supportive market conditions across most of our geographies primarily in Continental Europe (Benelux, France & Spain and DACH regions) and USA, (headcount up 8% and 11% respectively). The year-end total headcount was up 7% at 3,196 (2018: 2,979). The year-end sales headcount represented 77% of the total Group headcount.  Investments During the year, we continued to invest in in-house innovation initiatives, expensing a total of £2.2 million (2018: £2.4 million) on our 'build' programme. We have reprioritised our innovation effort towards our most promising initiative, Hirefirst. It was launched in October 2018 and is at the early market testing stage. In the current year, Hirefirst generated its first revenue of £0.3 million. During the year we wrote off in full two equity investments that the Group held in the external innovation start-ups, i.e. The Sandpit Limited and Ryalto Limited. The equity rights in The Sandpit Limited, which discontinued its operations earlier this year, were converted into a minority shareholding in The Sandpit Ventures Limited at an immaterial nominal book value. Ryalto Limited continued to incur operating losses as it failed to gain momentum and build a customer base. Due to a lack of prospective buyers for the business, Ryalto's board of directors passed a resolution to liquidate the business. In 2019, the Group transitioned to IFRS 9, a new financial instruments standard, accordingly, the write-offs of the equity investments were recognised in other comprehensive income.  Taxation The tax charge on pre-exceptional statutory profit before tax for the year was £15.9 million (2018: £13.9 million), representing an effective tax rate ('ETR') of 26.9% (2018: 25.9%). The ETR on post exceptional statutory profit before tax was 27.3% (2018: 27.1%). The ETR is primarily driven by country profit mix and their respective tax rates. However, a number of other factors overlay this base position, including:
 Earnings per share ('EPS') On an adjusted basis, basic EPS was up by 2.5 pence, or 8%, at 33.2 pence (2018: adjusted 30.7 pence), due to an increase in the adjusted profit before tax, partially offset by a 1.2 million increase in weighted average number of shares. On a reported basis, EPS increased to 31.8 pence, up 5.2 pence on the prior year (2018: 26.6 pence), attributable mainly to an improved trading performance and decline in restructuring costs as explained above. The weighted average number of shares used for basic EPS grew to 129.9 million (2018: 128.7 million). Reported diluted EPS was 30.9 pence (2018: 25.7 pence), up 5.2 pence. Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses, the volume of new tracker arrangements created and the settlement of vested arrangements.  Dividends The Board proposed to increase a final dividend to 10.2 pence per share (2018: 9.8 pence). Taken together with the interim dividend of 5.1 pence per share (2018: 4.7 pence), this brings the total dividend for the year to 15.3 pence per share (2018: 14.5 pence). This represents a 6% increase in dividend per share versus the prior year. The final dividend, which amounts to approximately £13.5 million, will be subject to shareholder approval at the 2020 Annual General Meeting. It will be paid on 5 June 2020 to shareholders on the register on 1 May 2020. The Board monitors the appropriate level of the dividend, taking into account, inter alia, achieved and expected trading of the Group, together with its balance sheet position. As previously stated, the Board is targeting a dividend cover(1) of between 2.0x and 2.5x, based on underlying EPS, over the short to medium term.[10]  Share options and tracker share arrangements We recognised a share-based payment charge of £2.7 million during the year (2018: £4.7 million) for the Group's various share-based incentive schemes. The lower charge in 2019 is primarily due to lower than expected non-market vesting conditions, such as strategic targets and regional trading performance. Furthermore, the share-based payment charge in the prior year was affected by the accelerated cost recognised for all 'good leavers' who left the Group as a result of strategic restructuring of our support functions. We also operate a tracker share model to help retain and motivate our entrepreneurial management within the business. The programme gives our most senior sales colleagues a chance to invest in a business they manage with the support and economies of scale that the Group can offer them. In 2019, 52 employees invested an equivalent of £0.5 million in 23 Group businesses. We settled certain tracker shares during the year for a total consideration of £4.4 million (2018: £3.7 million) which was determined using a formula in the Articles of Association underpinning the tracker share businesses. We settled the consideration in SThree plc shares either by issuing new shares (475,738 new shares were issued on settlement of vested tracker shares in 2019) or treasury shares (in total 974,583 were used in settlement of vested tracker shares in 2019). Consequently, the arrangement is deemed to be an equity-settled share-based payment arrangement under IFRS 2 Share-based payments. There is no charge to the income statement as initially the tracker shareholders subscribed to the tracker shares at their fair value. We expect future tracker share settlements to be between £5.0 million to £10.0 million per annum. These settlements may either dilute the earnings of SThree plc's existing ordinary shareholders if funded by new issue of shares or will result in a cash outflow if funded via treasury shares. Note 1 to the financial statements provides further details about all Group-wide discretionary share plans, including the tracker share arrangements.    Balance sheet At 30 November 2019, the Group's net assets increased to £116.8 million (2018: £101.7 million), mainly due to the excess of net profit over the dividend payments, offset by share buy backs and decline in fair valuation of equity investments during the year. The most significant item in our statement of financial position is trade receivables (including accrued income) which decreased to £256.2 million (2018: £274.6 million). The main driver of the decline was an accounting adjustment of £13.0 million to the opening balance of the accrued income following the implementation of the new revenue standard IFRS 15. It was partially offset by a 3%* increase in Contract net fees Q4 year on year. Days Sales Outstanding ('DSOs') remained flat at 44 days (2018: 44 days). Trade and other payables decreased to £172.4 million in 2019 (2018: £191.7 million), primarily due to £9.9 million in IFRS 15 adjustment, and the remainder is attributable to favourable movements in foreign exchange rates (£5.8 million), a 1% decline in contractors in Q4 year on year, and a decline in Creditor Days to 15 days (2018: 17 days). Provisions decreased by £1.5 million primarily due to a utilisation in a restructuring provision for the relocation of central support functions from London to Glasgow. Investment in subsidiaries (Company only) During the year, the Directors reviewed the recoverable amount of the Company's own portfolio of investments. As a result, an impairment loss of £8.2 million was recognised in respect of the UK operations. In 2019, the trading performance of the UK arm of the Group operations continued to decline due to the ongoing macroeconomic uncertainty surrounding Brexit and its outcomes. Both Permanent and Contract divisions across all sectors experienced reduced margins impacting the profitability of the UK region. After booking this impairment, the distributable retained earnings were £122.0 million (£2018: £156.5 million).  Strong cash generation On an adjusted basis, we generated net cash from operations at £54.8 million (2018: £40.6 million on an adjusted basis). It reflects a combination of (i) the improved underlying trading performance, driven by our international markets, (ii) cost savings generated from the restructuring of support functions, and (iii) the benefits of operational efficiencies including cash collection. Capital expenditure increased moderately to £4.6 million (2018: £4.2 million excluding £1.0 million in exceptional capital expenditure), reflecting higher spend on IT infrastructure and office fittings. Overall, the cash conversion ratio(2) increased to 83.7% on an adjusted basis and 84.1% on a reported basis (2018: 67.4% on an adjusted basis and 52.3% on a reported basis). The net cash outflow associated with exceptional items was £1.7 million (2018: £10.5 million).[11] During the year, SThree plc bought back shares for £2.5 million (2018: £1.5 million) to satisfy employee share schemes in future periods. Small cash inflows were generated from Save As You Earn employee schemes. Income tax paid decreased to £12.9 million (2018: £14.4 million). The Group paid £0.9 million in net interest cost in the year. Foreign exchange had a moderate positive impact of £0.6 million (2018: £0.3 million). Dividend payments increased to £18.8 million (2018: £18.0 million) as a result of the increased dividend per share and higher number of shares issued to the market. Distributions to tracker shareholders nearly doubled to £0.2 million (2018: £0.1 million) as a result of the improved trading performance of the tracked businesses. We started the year with net debt of £4.1 million and closed the financial year with net cash of £10.6 million. The year-on-year improvement primarily reflected an increased cash collection focus and significantly reduced cash outflows associated with the Group restructuring.  Treasury management We finance the Group's operations through equity and bank borrowings. The Group's cash management policy is to minimise interest payments by closely managing Group cash balances and external borrowings. We intend to continue this strategy while maintaining a strong balance sheet position. We maintain a committed Revolving Credit Facility ('RCF') of £50.0 million, along with an uncommitted £20.0 million accordion facility, with HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility to £70.0 million. At the year end, there were no draw downs (2018: £37.4 million) on these facilities. The RCF is subject to financial covenants requiring the Group to maintain financial ratios over interest cover of at least 4.0, leverage of at least 3.0 and guarantor cover at 85% of EBITDA(3) and gross assets. The Group was in compliance with these covenants throughout the year. We ended 2019 with significant headroom on all our covenants. The funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above three-month LIBOR, giving an average interest rate of 2.0% during the year (2018: 1.8%). The finance costs for the year amounted to £1.0 million (2018: £0.7 million). The Group also has an uncommitted £5.0 million overdraft facility with HSBC. The Group's UK-based treasury function manages the Group's treasury risks in accordance with policies and procedures set by the Board, and is responsible for day-to-day cash management; the arrangement of external borrowing facilities; the investment of surplus funds; and the management of the Group's interest rate and foreign exchange risks. The treasury function does not engage in speculative transactions or operate as a profit centre.  Foreign exchange Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of the business with the main functional currencies of the Group entities being Sterling, the Euro and the US Dollar. In 2019, movements in exchange rates between Sterling and the Euro and the US Dollar provided a moderate net tailwind to the reported performance of the Group with the highest impact coming from the Euro and US Dollar. Year-on-year movements in foreign exchange rates increased our reported 2019 net fees by approximately £4.3 million and operating profit by £1.2 million. Exchange rate movements remain a material sensitivity. By way of illustration, each one per cent movement in annual exchange rates of the Euro and US Dollar against Sterling impacted our 2019 net fees by £2.0 million and £0.8 million, respectively, and operating profit by £0.6 million and £0.2 million, respectively. The Board considers it appropriate in certain cases to use derivative financial instruments as part of its day-to-day cash management to provide the Group with protection against adverse movements in the Euro and US dollar during the settlement period. The Group does not use derivatives to hedge translational foreign exchange exposure in its balance sheet and income statement. ÂÂPrincipal RisksPrincipal risks and uncertainties affecting the business activities of the Group will be detailed within the Strategic Report section of the Group's 2019 Annual Report, a copy of which will be available on the Group's website www.sthree.com. Delivering on our strategy requires all parts of our business to work together. In isolation risk mitigation helps SThree manage specific subjects and areas of the business. However, when brought into our day-to-day activities successful risk management has helped us to maximise our competitive advantage and deliver on our strategic priorities in 2019. Whilst the ultimate responsibility for risk management rests with the Board, the effective day-to-day management of risk is in the way we do business and our culture. Aligning risks and strategy by using risk to help make the right strategic decisions - in order to deliver our strategy and competitive advantage throughout the business we must ensure that we maintain a balance between safeguarding against potential risks and taking advantage of all potential opportunities.
  The accompanying notes on pages 20-30 form an integral part of this Financial Report.  Â
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 The accompanying notes on pages 20-30 form an integral part of this Financial Report.
 The accompanying notes on pages 20-30 form an integral part of this Financial Report. Notes to the Financial Information for the year ended 30 November 2019  Â
 Basis of preparation The financial information in this preliminary announcement has been extracted from the Group audited financial statements for the year ended 30 November 2019 and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements and this preliminary announcement were approved by the Board of Directors on 24 January 2020. The auditors have reported on the Group's financial statements for the years ended 30 November 2019 and 30 November 2018 under s495 of the Companies Act 2006. The auditors' reports are unqualified and do not contain a statement under section 498(2) or (3) of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 November 2018 were filed with the Registrar of Companies and those for the year ended 30 November 2019 will be filed following the Company's Annual General Meeting. In 2019, selected UK subsidiaries were exempt from the requirements of the UK Companies Act 2006 ('the Act') relating to the audit of individual accounts by virtue of s479A of the Act. The Company provides a guarantee concerning the outstanding liabilities of these subsidiaries under section 479C of the Act. The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') and IFRS Interpretations Committee ('IFRS IC') as adopted and endorsed by the European Union and have been prepared under the historical cost convention, as modified by financial assets held at fair value through profit or loss or held at fair value through other comprehensive income. The same accounting policies, presentation and computation methods are followed in this preliminary announcement as in the preparation of the Group financial statements. The Group's principal accounting policies, as set out below, have been consistently applied in the preparation of these financial statements of all the periods presented, except where otherwise indicated.  New and amended accounting standards The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 1 December 2018. Information on the implementation of new accounting standards is included in the Group's financial statements - see note 1 New and amended accounting standards.  IFRS 9 Financial Instruments IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 resulted in changes in accounting policies; however, there were no adjustments to the amounts recognised in the financial statements at 1 December 2018, due to the immaterial impact of IFRS 9. On the date of initial application of IFRS 9, the Directors assessed which business models were applicable to the financial assets held by the Group, and classified its financial instruments into the appropriate IFRS 9 categories: financial assets held at fair value through profit or loss ('FVTPL'), financial assets held at fair value through other comprehensive income ('FVOCI'), and financial assets held at amortised cost (the latter comprise primarily 'Trade and other receivables'). The main effects resulting from this reclassification were as follows: Â
 * The closing balances as at 30 November 2018 show available-for-sale financial assets under FVOCI.   IFRS 15 Revenue from Contracts with Customers Under IFRS 15, revenue from contracts with customers is recognised as or when the Group satisfies a performance obligation by transferring a promised service to a customer. A service is transferred when the customer obtains control of that service. The adoption of IFRS 15 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements on 1 December 2018. In line with the transition provisions in IFRS 15, the Group adopted the refined revenue recognition rules on the modified retrospective basis without restatement of comparatives. Under the modified transition method, on 1 December 2018, a net (post tax) adjustment of £2.3 million was made to the opening balance of retained earnings, to recognise a new policy of estimating accrued income.    The following adjustments were made to the amounts recognised in the statement of financial position at the date of initial application: Â
 The impact on the Group's retained earnings at 1 December 2018 is as follows: Â
 Contract revenue ('accrued income') is recognised when the supply of professional services has been rendered. This includes an assessment of professional services received by the client for services provided by contractors between the date of the last received timesheet and the reporting end date. Accrued income is recognised as revenue for contractors where no timesheet has been received, but the individual is 'live' on the Group's systems, or where a client has not yet approved a submitted timesheet. Previously, such accruals were systematically removed after a three-month cut-off date if no timesheet was received or no customer approval was obtained. That policy of estimating accrued income/cost historically resulted in a portion of revenue/cost being reversed (this is referred to as 'shrinkage'). Under IFRS 15, an amount of estimated Contract accrual can only be recognised if it is highly probable that a significant reversal in the amount of recognised revenue will not occur in subsequent periods. In line with this new requirement, to prevent the over-recognition of revenue, from 1 December 2018 the Group has applied the historical shrinkage rate to the amount of accrued income/cost determined for unsubmitted or unapproved timesheets. As a consequence, on 1 December 2018 the accrued income and cost would have been £13.0 million and £9.9 million lower respectively. This resulted in a net adjustment to the opening balance of retained earnings of £3.1 million pre-tax.  Going concern The Group's business activities, together with the factors likely to affect its future development, performance, its financial position, cash flows, liquidity position and borrowing facilities are described in the strategic section of the Annual Report. In addition, notes to the Group financial statements include details of the Group's treasury activities, funding arrangements and objectives, policies and procedures for managing various risks including liquidity, capital management and credit risks. The Directors have considered the Group's forecasts, including taking account of reasonably possible changes in trading performance, and the Group's available banking facilities. Based on this review and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt a going concern basis in preparing these financial statements and this preliminary announcement.  Â
        The Group's operating segments are established on the basis of those components of the Group that are regularly reviewed by the Group's chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Group's business is considered primarily from a geographical perspective.                                                    The Directors have determined the chief operating decision maker to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief People Officer and the Chief Sales Officer, with other senior management attending via invitation. The Group segments the business into four reportable regions: United Kingdom & Ireland ('UK&I'), USA, Asia Pacific & Middle East ('APAC & ME') and Continental Europe. The latter comprises DACH (Germany, Switzerland and Austria) and 'Benelux, France & Spain' ('BFS'); both sub-regions were aggregated into one reportable segment based on the possession of similar economic characteristics. DACH and BFS generate a similar average net fees margin and long-term growth rates, and are similar in each of the following areas: ï‚·Â Â Â Â Â Â Â Â Â the nature of the services (i.e. recruitment/candidate placement)ï‚·Â Â Â Â Â Â Â Â Â the methods used in which they provide services to clients (i. 'Freelance contractors', ii. Employed contractors, and iii. 'Permanent' candidates)ï‚·Â Â Â Â Â Â Â Â Â the class of candidates (candidates, who we place with our clients, represent skill sets in Science, Technology, Engineering and Mathematics disciplines) The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 to the Group financial statements in the summary of significant accounting policies.   Revenue and net fees by reportable segment The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as "Net fees" in the management reporting and controlling systems. Net fees is the measure of segment profit comprising revenue less cost of sales.                                                                              Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.  Â
    Continental Europe primarily includes Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Spain and Switzerland.  APAC & ME mainly includes Australia, Dubai, Hong Kong, Japan, Malaysia and Singapore.   Other information      The Group's revenue from external customers, its net fees and information about its segment assets (non-current assets excluding deferred tax assets) by key location are detailed below:               Â
           The following segmental analysis by brands, recruitment classification and sectors (being the profession of candidates placed) have been included as additional disclosure to the requirements of IFRS 8.                 Â
 Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands. Â
 Other includes Procurement & Supply Chain and Sales & Marketing.   Â
 CEO change costs On 14 December 2018, the Group communicated to the market that the Chief Executive Officer, Gary Elden, would step down from his role. After a rigorous recruitment process, the new Chief Executive Officer ('CEO'), Mark Dorman, joined the Group on 18 March 2019. This CEO change resulted in the exceptional charge of £1.2 million in 2019, mainly comprising contractual payments to the departing CEO and recruitment fees. Restructuring costs - Senior leadership restructuring To continue to drive the Group growth plans, and deliver on our ambition to be the number one in our chosen STEM markets, a number of key changes were made to the senior leadership structure (impacting UK&I, Benelux, Spain, MENA and France) in the current year. These changes are expected to position the Group for a stronger growth by building upon the enhanced alignment being put in place between these important markets and moving to a more efficient regional structure. These changes resulted in the exceptional charge of £1.2 million in the current year. Restructuring costs - Support function relocation The expected benefits are being realised from the successful restructure and relocation of the majority of our London-based support functions to our Centre of Excellence in Glasgow. This restructuring has realised cost savings in excess of £5.0 million per annum. The restructuring resulted in the recognition of net exceptional income of £0.1 million in the current year. Personnel costs of £0.3 million and property costs £0.3 million, offset by the government grant income of £0.7 million. We do not expect to incur any further exceptional costs in respect of the move to Glasgow whilst the additional government grant is anticipated to be received and recognised as exceptional income in the period through to the end of 2021.  Due to the material size and non-recurring nature of this strategic restructuring project, the associated costs have been separately disclosed as exceptional items in the Consolidated Income Statement in line with their treatment in 2018. Disclosure of items as exceptional, highlights them and provides a clearer, comparable view of underlying earnings.  Items classified as exceptional were as follows.
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 The Group's tax charge for the year exceeds (2018: exceeds) the UK statutory rate and can be reconciled as follows: Â
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 The Group expects to receive additional tax deductions in respect of share options currently unexercised. Under IFRS, the Group is required to provide for deferred tax on all unexercised share options. Where the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, this indicates that the tax deduction relates not only to remuneration expense but also to an equity item. In this situation, the excess of the current or deferred tax should be recognised in equity. At 30 November 2019, a deferred tax asset of £1.9 million (2018: £0.9 million) has been recognised in respect of these options. Prior to the adoption of IFRS 15, income of £3.2 million was recognised and taxed. On transition to IFRS 15 this income was reversed via the opening balance of retained earnings, and hence a tax deduction was due on this reversal. This tax deduction resulted in a tax credit of £0.8 million.   Â
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 The calculation of the basic and diluted earnings per share ('EPS') is set out below: Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average number of shares in issue during the year excluding shares held as treasury shares and those held in the EBT which are treated as cancelled. For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares. Potential dilution resulting from tracker shares takes into account profitability of the underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in these factors.                      Â
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 Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their fair values. Substantially all of these assets are categorised within level 1 of the fair value hierarchy. The Group has three cash pooling arrangements in place at HSBC US (USD), NatWest (GBP) and Citibank (EUR).   Â
 The Group has access to a committed Revolving Credit Facility ('RCF') of £50.0 million along with an uncommitted £20.0 million accordion facility in place with HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility to £70.0 million. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (2018: 1.3%) above the appropriate Sterling LIBOR. The average interest rate paid on the RCF during the year was 2.0% (2018: 1.8%). The Group also has an uncommitted £5.0 million overdraft facility with HSBC. At the year end, the Group had drawn down £nil (2018: £37.4 million) on these facilities. The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The Group has been in compliance with these covenants throughout the year. RCF facility is available under these terms and conditions until April 2023. Analysis of movements in borrowings is set out below.
 1. In 2018, £0.5 million represented the unamortised amount of transaction costs including those incurred on renegotiating the facility.  The carrying amount of the Group's borrowing, comprising the RCF, approximates its fair value. The fair value of the RCF is estimated using discounted cash flow analysis based on the Group's current incremental borrowing rates for similar types and maturities of borrowing and is consequently categorised in level 2 of the fair value hierarchy. Â
 In discussing the performance of the Group, 'comparable' measures are used, which are calculated by deducting from the directly reconcilable IFRS measures the impact of the Group's restructuring costs and CEO change costs, which are considered as items impacting comparability, due to their nature. Reconciliation of adjusted financial indicators
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 APMs in constant currency As we are operating in 16 countries and with many different currencies, we are affected by foreign exchange movements, and we report our financial results to reflect this. However, we manage the business against targets which are set to be comparable between years and within them, for otherwise foreign currency movements would undermine our ability to drive the business forward and control it. Within this annual report, we highlighted comparable results on a constant currency basis as well as the audited results ('on a reportable basis') which reflect the actual foreign currency effects experienced. The Group evaluates its operating and financial performance on a constant currency basis (i.e. without giving effect to the impact of variation of foreign currency exchange rates from year to year). Constant currency APMs are calculated by applying the budgeted foreign exchange rates to current and prior financial year results to remove the impact of exchange rate. (Two main budgeted foreign exchange rates were GBP:EUR of 1.25 and GBP:USD of 1.40). Measures on a constant currency basis enable users to focus on the performance of the business on a basis which is not affected by changes in foreign currency exchange rates applicable to the Group's operating activities from year to year. The calculations of the APMs on constant currency basis and the reconciliation to the most directly related measures calculated in accordance with IFRS are as follows:
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 * Operating profit conversion ratio represents operating profit over net fees   Other APMs  Net debt Net debt is an APM used by the Directors to evaluate the Group's capital structure and leverage. Net debt is defined as current and non-current borrowings, plus bank overdraft less cash and cash equivalents, as illustrated below:   Â
 Adjusted EBITDA Adjusted EBITDA is calculated by adding back to the reported operating profit operating non-cash items such as the depreciation and impairment of property, plant and equipment, the amortisation and impairment of intangible assets, the employee share option and exceptional costs. See the table below illustrating how adjusted cash conversion ratio is calculated. Adjusted EBITDA is intended to provide useful information to analyse the Group's operating performance excluding the impact of operating non‑cash items as defined above. The Group also uses adjusted EBITDA to measure the level of financial leverage of the Group by comparing Adjusted EBITDA to net debt.  Dividend cover The Group uses dividend cover as an APM to ensure that its dividend policy is sustainable and in line with the overall strategy for the use of cash. Dividend cover is defined as the number of times the Company is capable of paying dividends to shareholders from the profits earned during a financial year, and it is calculated as the Company's profit for the year attributable to owners of the Company over the total dividend paid to ordinary shareholders. Â
 Contract margin The Group uses Contract margin as an APM to evaluate Contract business quality and the service offered to customers. Contract margin is defined as Contract net fees as a percentage of Contract revenue. Â
 Consultant yield The Group uses consultant yield as an APM to assess the productivity of the sales teams. Consultant yield is defined as Group net fees divided by Group average sales headcount over a factor of 12. Â
  Total shareholder return ('TSR') The Group uses TSR as an APM to measure the growth in value of a shareholding over a specified period, assuming that dividends are reinvested to purchase additional shares at the closing price applicable on the ex-dividend date. The TSR are calculated by the external independent data-stream party. Â
 Cash conversion ratio The Group uses cash conversion ratio as an APM to measure a business ability to convert profit into cash. It represents cash generated from operations for the year after deducting capex, stated as a percentage of operating profit.  The following table illustrates how adjusted cash conversion ratio is calculated. Â
 * Operating non-cash items represent primarily depreciation, amortisation and impairment of intangible assets and the employee share option and performance share costs in line 'Non-cash charge for share-based payments' of the Consolidated Statement of Cash Flows. Â
 * Operating non-cash items represent primarily depreciation, amortisation and impairment of intangible assets and the employee share option and performance share costs in line 'Non-cash charge for share-based payments' of the consolidated cash flow statement.  Â
 The 2019 Annual Report and Notice of 2020 Annual General Meeting will be posted to shareholders shortly. Copies will be available on the Company's website www.sthree.com or from the Company Secretary, 1st Floor, 75 King William Street, London, EC4N 7BE. The Annual General Meeting of SThree plc is to be held on 20 April 2020.           [1] * In constant currency * In constant currency [3] * In constant currency * In constant currency * In constant currency * In constant currency * In constant currency * In constant currency. For more details on APM, refer to Alternative Performance Measures in note 10 * In constant currency (1) For details on dividend cover, its definition and how it was calculated, refer to Alternative Performance Measures in note 10  * In constant currency (2) For details on cash conversion, its definition and how it was calculated, refer to Alternative Performance Measures in note 10 (3) For details on EBITDA, its definition and how it was calculated, refer to Alternative Performance Measures in note 10 |
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| ISIN: | GB00B0KM9T71 |
| Category Code: | FR |
| TIDM: | STEM |
| LEI Code: | 2138003NEBX5VRP3EX50 |
| Sequence No.: | 42733 |
| EQS News ID: | 961229 |
| Â | |
| End of Announcement | EQS News Service |
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