FY23 Final Results

SThree plc

30 January 2024

SThree plc

FINAL RESULTS FOR THE YEAR ENDED 30 NOvember 2023

Resilient performance sustained, underpinned by Contract

SThree plc ('SThree' or the 'Group'), the only global specialist talent partner focused on roles in Science, Technology, Engineering and Mathematics (STEM), today announces its financial results for the year ended 30 November 2023.

FINANCIAL HIGHLIGHTS

Continuing operations	FY23	FY22	Variance
Continuing operations	FY23	FY22	Reported	Like-for-like ⁽¹⁾
Revenue (£ million)	1,663.2	1,639.4	+1%	flat
Net fees (£ million)	418.8	430.6	-3%	-4%
Operating profit (£ million)	76.4	77.6	-2%	-5%
Operating profit conversion ratio	18.2%	18.0%	+0.2% pts	-0.1% pts
Profit before tax (£ million)	77.9	77.0	+1%	-2%
Basic earnings per share (pence)	42.4	41.0	+4%	+1%
Proposed final dividend per share (pence)	11.6	11.0	+5%	+5%
Total dividend (interim and final) per share (pence)	16.6	16.0	+4%	+4%
Net cash (£ million)⁽²⁾	83.2	65.4	+27%	+27%

⁽¹⁾ Variance compares the reported results for FY23 against FY22 on a constant currency basis, whereby the prior year foreign exchange rates are applied to current and prior financial year results to remove the impact of exchange rate fluctuations.

⁽²⁾ Net cash represents cash and cash equivalents less borrowings and excluding leases.

Full-Year Highlights

·	A resilient performance, with Group net fees down 4% YoY⁽³⁾ on a like-for-like basis, against a record prior year (FY22: YoY growth: 19%) and challenging global macro-economic backdrop.
	o	Net fees across our three largest countries, representing 73% of Group: Netherlands up 3%, Germany and USA down 4% and 14% respectively.
	o	Within skill verticals: Engineering was up 17%, whilst Technology was down 2% and Life Sciences was down 21%.
·	Contract net fees, which now represent 82% of Group net fees (FY22: 78%), were up 1% driven by robust contract extensions.
·	Permanent net fees, representing 18% of Group net fees, were down 22% reflecting both challenging market conditions and our strategic transition towards Contract in specific markets (average Permanent headcount down 17%).
·	Contractor order book⁽⁴⁾ of £184 million, whilst down 3% YoY versus a record prior year comparator, represents sector-leading visibility with the equivalent of c.4 months' net fees, providing a robust platform for the year ahead.
·	Profit before tax of £78 million (down 2% YoY on a like-for-like basis), ahead of market expectations largely due to timing of recognition of Technology Improvement Programme expenses, lower than expected final bonus and commission payments, and the release of some specific bad debt provisions following successful collections since the year-end.
·	Strong balance sheet, with £83.2 million in net cash at year end (FY22: £65.4 million).
·	Final dividend proposed of 11.6 pence per share (FY22: 11.0 pence per share), taking full year dividend to 16.6 pence per share (FY22: 16.0 pence per share), up 4% YoY. This is in line with the previously communicated dividend cover target between 2.5x and 3.0x.
·	Technology Improvement Programme (TIP) remains on track and on budget with the first iteration now live across the US business. This programme will be key to further differentiating our proposition across our core markets, as well as driving both scale and higher margins over the mid-to-long term.
·	Delivering against our sustainable business and ESG commitments:
	o	Renewable business up 28% versus FY22 (FY22: up 29% versus FY21), ahead of our target to double the share of this business from FY19 to FY24.
	o	8% carbon reduction in FY23 in comparison to FY19, our baseline year for our SBTi net zero target.
	o	Over 25,725 lives positively impacted in FY23 (FY22: over 32,900).
	o	39% of women (FY22: 32%) in leadership positions as we progress towards achieving our ambition of 50/50 representation in leadership.

Outlook

·	Contract extensions remain strong whilst new business activity continues to be subdued for longer than expected.
·	Productivity normalisation, as previously communicated, combined with the recognition of deferred TIP costs will temper the conversion ratio in FY24 from FY23 levels, yet we expect this will remain sector-leading.
·	Continued focus on sequenced rollout of the TIP across rest of the Group, strengthening the Group's position for long-term growth.

Timo Lehne, Chief Executive Officer, commented:

Notwithstanding the broader challenging economic environment, our delivery this year has been resilient, especially against the context of a record prior year. Our unique model and strategic focus have benefitted us throughout the year, with our core areas of focus, STEM skills and flexible talent, benefitting from structural growth drivers and providing us with a strong platform both now and over the long term.

Following the successful roll out of the first iteration of our Technology Improvement Programme in one of our most complex regions yielding positive feedback from candidates, clients and our teams, we look forward to the next phase of sequential implementation across Germany, UK and Netherlands. The opportunity this brings is extensive, both operationally and commercially, with the ultimate goal of driving scale and higher margins for the Group. In the year ahead we expect to be able to share some early proof points.

We have been consciously investing in and positioning the business for future growth and, whilst we continue to operate in a challenging macro environment, this does not change our focus. We have a resilient business, a talented team and are building a market-leading technology suite. We are confident that our investments and innovations put the Group in a position of strength to capture market share as and when the market returns to growth.

⁽³⁾ All YoY growth rates in this announcement are expressed at constant currency.

⁽⁴⁾ The contractor order book represents value of net fees until contractual end dates, assuming all contractual hours are worked.

Analyst conference call

SThree is hosting a webinar for analysts and investors today at 08:30 GMT to present the Group's results for the financial year ended 30 November 2023. If you would like to register for the webinar, please contact SThree@almastrategic.com.

SThree will issue its FY24 Q1 Trading Update on 19 March 2024.

The person responsible for this announcement is Kate Danson, Company Secretary.

Enquiries:

SThree plc

Timo Lehne, CEO via Alma

Andrew Beach, CFO

Keren Oser, Investor Relations Director

Alma Strategic Communications +44 20 3405 0205

Rebecca Sanders-Hewett SThree@almastrategic.com

Hilary Buchanan

Sam Modlin

Will Ellis Hancock

Notes to editors

SThree plc brings skilled people together to build the future. We are the only global specialist talent partner focused on roles in Science, Technology, Engineering and Mathematics (STEM), providing permanent and flexible contract talent to a diverse base of over 7,200 clients across 11 countries (excluding Ireland, Luxembourg and Singapore, which as of 30 November 2023 were no longer going concern). Our Group's circa 2,700 staff cover the Technology, Life Sciences and Engineering sectors. SThree is part of the Industrial Services sector. We are listed on the Premium Segment of the London Stock Exchange's Main Market, trading with ticker code STEM.

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. Certain data from the announcement is sourced from unaudited internal management information and is before any exceptional items. Accordingly, undue reliance should not be placed on forward looking statements.

CHair's statement

2023 has been another challenging year for many people around the globe. Heightened levels of geo-political and macro-economic instability have impacted individuals, businesses and governments, creating an increasingly complex commercial environment. Meanwhile, issues that were prevalent last year, including high inflation and interest rates, the rising cost of living and a global energy crisis have continued to have an impact on our lives.

Our teams, customers and key markets of operation have all been impacted differently by these issues, yet I am proud that SThree has still delivered a resilient performance this year, thanks to our strategic focus on sourcing and placing the best STEM talent. Our robust performance in Contract, supported by our unique Employed Contractor Model (ECM), underpins our confidence in the megatrend that is the demand for flexible workers in STEM. In the year we placed 15,292 skilled people and maintained a strong orderbook throughout. I would like to thank our clients and candidates for the trust they have placed in the Group this year. I would also like to thank every member of the SThree team for their efforts to support our customers. It is thanks to their skill and dedication that SThree finds itself in this position of strength today, with many exciting opportunities to be pursued in the near future.

Since Timo's appointment as Chief Executive Officer in April 2022 his energy and vision has spread across the business, with the whole team coming together to execute an exciting growth strategy. Our Technology Improvement Programme underpins a large part of this strategy and I am delighted to report that it continues to roll out at pace, providing a market-leading platform for future growth and productivity that has been designed to provide us with the best opportunity to continue to seize market share in our target markets.

Following the resilient trading performance in the year, coupled with a healthy balance sheet position, the Board is proposing a final dividend at 11.6 pence per share, which taken together with the interim dividend of 5.0 pence per share, gives the total dividend for the year of 16.6 pence per share, an increase of 4% over the prior year. This is in line with the Board's policy to offer shareholders long-term ordinary dividend growth within a targeted cover range of 2.5x to 3.0x and forms part of our wider capital allocation policy.

Maximising shareholder value through a disciplined approach to investment to deliver growth in net fees and margin, whilst maintaining a strong balance sheet and sustainable through-the-cycle dividend, remains a priority for the Board. Following a periodic review, the Group's capital allocation policy has been refreshed to reflect investments in business improvement alongside organic and inorganic growth as a key aspect of our strategy.

Across the Group, we are clear on our ambitions and delivering our strategy. With the addition of Margot van Soest (managing director, Netherlands and Spain), Sarah Mason (Chief People Officer) and Matt McManus (managing director, USA) to the Executive Committee, coupled with the appointment of Imogen Joss as Non-Executive Director early in the financial year, we have an enhanced, experienced executive leadership team and Board in place to drive the Group forward. I would like to thank both the executive team and Board for all their hard work this year, alongside those inside and working together with our business who have helped us achieve a resilient set of results. I am especially proud of our promotion to the FTSE 250, after too many years of absence. This is a clear reflection of the progress we have made, and is another key milestone in SThree's ongoing journey.

We remain committed to reducing our impact on the planet, providing great opportunities for our people and ensuring we have the governance processes in place to protect each and every SThree stakeholder. We are proud to support the transition to a green economy by connecting engineering talent to the green energy projects where they are most needed, and we are dedicated to making SThree an employer of choice for staff. I am delighted that, for the first time, through targeted ownership opportunities, over 50% of our employees are now shareholders in the business, something we see as the ultimate vote of confidence in our direction of travel, providing strong alignment with our wider shareholder base.

Looking ahead, while we remain conscious of the wider economic environment, I am confident that the Group will continue to deliver against our strategy. We have continued to invest across the business, enhancing and innovating how we operate so that as customer confidence strengthens and the market returns to growth, we are in the best position possible to seize the opportunity. With a market leading technology suite underpinning our future operations and a talented and experienced team in place, we are confident in the Group's long-term prospect.

James Bilefield

Chair

29 January 2024

Chief executive officer's statement

I am proud of the work we have achieved over the past year. The Group has performed well against a challenging economic backdrop, demonstrating the resilience of our business model and strength of our strategy, with the megatrend of demand for flexible STEM workers persisting across our core markets. Through this, we have invested in our people, infrastructure, product offering and made excellent progress in the positioning of SThree for sustainable long-term growth.

The strength of the Group derives from our clear purpose: bringing skilled people together to build the future. We firmly believe that the future is flexible STEM talent. Underpinned by long-term megatrends, the two growth drivers of STEM and flexible talent have proven resilient through cycles, providing a unique business model that delivers quality of earnings and good visibility.

Whilst this core purpose remains consistent, we must also evolve. As a business consciously aligned to megatrends, we are acutely aware of how these structural forces, such as digital transformation, changing patterns of work, and the opportunities presented by artificial intelligence are affecting every industry. We have established a position as a leading specialist talent partner, built over decades through unrivalled STEM networks, long-term client relationships and deep expertise, all of which work together to create significant competitive differentiation. From this, we are progressing to the next stage of our growth journey as a digital-first organisation, with an integrated end-to-end platform that will redefine our potential and support us in unleashing our vision.

At the same time, we continue to be guided by our disciplined and focused approach to our investment decisions, supported by a robust business model. For FY23, the Group delivered net fees of £419 million, 4% down on the record prior year performance. With ongoing exceptional levels of productivity combined with tight cost control, whilst also benefiting from spend recognition timing on the Technology Improvement Programme (TIP) (without impacting delivery) we delivered operating profit of £76 million. This was delivered alongside a material increase in net cash balance to £83 million and a contractor order book of £184 million. This provides us with the financial strength and flexibility to pursue our market opportunity and to deliver value to shareholders.

Our approach: a platform of STEM resourcing solutions supporting our customers' business ambitions

The Group provides solutions to customers predominately through the placement of specialist STEM Contract skills, representing 82% of total net fees, as this model is particularly well aligned to employee and employer preferences in STEM roles. Within this, we have also established a specific expertise in delivering ECM, whereby contractors are directly employed by SThree and which is increasingly a source of growth for the business, now comprising nearly 50% of the contractor order book. We also provide our clients with high-value Permanent skills in select, strategic markets. The Group's STEM proficiency across all three employment models, whether it be Contractors, ECM or Permanent roles, allows us to offer the best solution to meet our customers' bespoke requirements.

We wrap this in a customer-centric service delivery approach, working collaboratively with our clients to source the scarce skills on which they depend, building enduring relationships with our contractors who view SThree as a partner in their career development. We are a people business, and we are super-charging our teams through the implementation of a sophisticated and integrated IT infrastructure. This is bringing our organisation closer together to drive scale, efficiencies and productivity, particularly in our growing ECM business which is complex and compliance heavy. We believe this will be a game-changer in the industry.

The market: our model performing in a challenging environment

Global macro-economic factors through the year, such as high inflation, market uncertainty and high interest rates weighing on investment decisions, have created a challenging labour market. Many organisations took stock of their previous expansive hiring initiatives to reassess their footprint in light of a weakening outlook.

The priority for organisations shifted to business-critical requirements, which for many is represented by STEM Contract skills. Whether it be engineers, cyber security specialists or medical scientists, organisations across sectors are dependent on these skills to function effectively. We saw these market dynamics play out during the year with robust extensions as clients sought to retain critical STEM skills helping to somewhat offset weaker new placement activity across the market.

Progressing our ESG commitments

As we navigate through periods of transient market conditions, we do not lose sight of our ESG commitments. We know that a successful business is a responsible one, seeking to deliver a positive outcome for all stakeholders. As such, we are pleased to have not only made continued progress against the clear ESG targets we have set ourselves, but to have also strengthened our environmental ambitions during the year with a new science-based target (SBTi-verified) of net zero before 2050. This complements the work we do every day promoting jobs that will build a sustainable future, and we are delighted to have achieved our target of doubling the share of our global renewables business ahead of the target date of FY24.

We continue to strive for social mobility and equity in STEM by encouraging diversity in our talent pipeline. We do this through our Elevate Careers programme and our partnership with Women Who Code where we have funded scholarships for 3,700 women. In FY23, we welcomed 47 women to our internal talent programme, Identify. We can see how the programme is improving retention and progression of our female employees, but we recognise we need to do more to make progress towards our ambition to have 50/50 women in leadership roles and this will continue to be a priority in FY24.

Strategic execution

Our places - knowing where to play, play where we can win

Our analytical and data-driven approach informs the regional and vertical mix we choose to operate in. Over the year we forensically analysed and validated our footprint, reconfirming our confidence in our active market coverage of 11 countries strategically focused in the biggest STEM markets. With an average share of under 3%, we believe there is substantial scope to scale, both organically and, given the highly fragmented and niche landscape, through select acquisitions that align with the Board's strict criteria, and in doing so, realise the increasing benefits of economies of scale.

This analysis also brought greater clarity and insight into the strategic direction for our regions - understanding where our core opportunities lie to drive margin and higher value, versus those regions ripe for steady growth or fast scaling opportunities. Within this context we continue to refine how we go to market. Within the US, we reinforced our presence by moving away from a brand-led management structure, to having strong fully-integrated regional teams serving all of our brands, and across the organisation we introduced new tools and dashboards to bring greater performance insight.

Our platform - digital first

We have bold ambitions to be a digital-first innovator in a traditionally analogue industry, and we see huge scope to drive higher margin growth by leveraging the power of modern technology. The systematic roll out of our TIP continues to progress on track and on budget, with our first deployment successfully completed in the US. Whilst we continue to work on data quality testing, it is evident that the "end-to-end" platform is working. We already have onboarded over 2,000 contractors, using it to submit timesheets, while to date we have issued over 15,000 invoices reflecting around $70 million of revenue.

We are seeing the early benefits from our first deployment, including the systemising of best practice and process efficiencies, helping to improve both employee and client experiences. Our disputed invoice volume has fallen considerably as a result of improved data collection, and our contractor payment process, which previously required a high proportion of manual intervention due to its complexity, has been streamlined significantly, freeing teams up to be more productive. As we have said before, the wider benefits around efficiencies and scaling will become evident with time as the TIP progresses, and the platform develops richer functionality.

We look ahead to our next regional deployment in Germany, commencing in the first half of FY24. We have a great team in place and are confident in our approach as proven by deployment in the US.

Our people - best employer, best people

The engine of our business is our brilliant people, and as such, we are focused on making our business a destination employer, attracting and retaining the best talent, in order to support our collective push as one team to achieve our growth ambition. The key metric we monitor to assess our standing is our employee net promoter score, and we were pleased to have comfortably retained our position this year in the top quartile of professional services companies. We continue to see high engagement across our employee surveys, there is growing uptake across the organisation of our DE&I learnings initiative launched in the previous year, and the soft launch of our newly redefined values in H2 to our sales leadership team is helping shape our culture as we grow.

With relation to the TIP, whilst a great deal of focus is on IT migration and data management, key to our programme is our training and change management initiatives working to ensure our teams understand our new capabilities and have the skills to adopt new ways of working. We have also started some bigger programmatic work, taking the global best practices and looking to standardise excellence.

Building on this, we will look to embed our new values across the Group. Other priorities are centred on ensuring we have the right incentives and infrastructure to allow our people to thrive, including the continued optimisation of our office footprint in line with current working model expectations, new talent management programmes to retain key talent and drive shorter time-to-productivity, and ongoing efforts to ensure an inclusive working environment that promotes best practice and ambition.

Our position - a winning brand with competitive and differentiated value propositions

We are committed to providing best-in-class STEM staffing services to our clients and candidates by leveraging our global network of specialised brands. Our approach ensures that every client receives tailored solutions, unparalleled expertise, and a pathway to reach their goals amid an ever-changing landscape whilst helping candidates realise their career ambitions. During the year, we reinforced our go-to-market brand position in specific vertical skills, elevated our thought-leadership through new research 'How the STEM world evolves', and established a Group Commercial function under a new Chief Commercial Officer position to coordinate our commercial strategy.

Outlook

As we look forward, Contract extensions remain strong and provide an ongoing source of resilience, although as we await an easing of the macro-economic backdrop, new business activity continues to be subdued for longer than expected. Our conversion ratio, whilst anticipated to temper from the exceptional FY23 levels as our staged investment programme progresses, is expected to remain sector leading. We have been consciously positioning the business for the future and whilst we continue to operate in a challenging market environment, this does not change our focus. We have a resilient business, a talented team, great client and candidate partnerships, and we are building a market leading technology suite. With our investments and innovations, we are confident that when the market returns to growth, we will be in a position of strength to source the best STEM talent the world needs.

Timo Lehne

Chief Executive Officer

29 January 2024

Group financial and OPERATIONAL REVIEW

Overview

The Group has delivered a resilient net fee performance during the year with net fees down 4% against a record prior year performance and challenging global macro-economic backdrop.

Our Contract business, which is our main strategic area, grew net fees by 1% and now represents 82% of the Group net fees. To grow Contract net fees against such a challenging market backdrop, is a particularly pleasing result. The contractor order book closed at £183.5 million, down 3% YoY but provides good visibility for the year ahead. Permanent net fees were down 22% reflecting both global market conditions and record comparatives, particularly in Life Sciences, together with our targeted investment towards Contract in specific markets.

From a skills perspective, most notable during the year has been the impact of reduced expenditure in the Global Life Sciences sector, which has affected the performance of most markets, with the greatest exposure and impact on our USA business. As a result, we saw a decline in Life Sciences net fees of 21% across the Group, though this was mostly offset by an increase in Engineering which was up 17%.

Overall, the Group reported operating profit was £76.4 million (FY22: £77.6 million), down 5% from the record performance achieved last year, reflecting ongoing exceptional levels of productivity together with tight cost control, including the benefits of the restructuring of certain markets at the end of FY22, whilst also benefiting from spend recognition timing on the Technology Improvement Programme (TIP) (without impacting delivery). Despite the challenging macro environment, we continue to see productivity levels exceed our expectations and anticipate this to moderate further until the market conditions improve and benefits of the TIP begin to materialise. Our profit also benefited from some delayed cost recognition (£2m-£3m) on the programme, which will be incurred in FY24 together with the commencement of licences and amortisation of the new technology. Combined with a continuing decline in productivity in the very short term we expect margins to temper in FY24 before improving in FY25.

The Group average headcount for the year was down 2% YoY which was partly impacted by the restructure of the Singapore, Hong Kong and Ireland businesses and also impacted by the strategic decision to reduce our average Permanent headcount by 17% YoY.

Update against 2024 ambitions

In line with our 2024 ambitions to deliver growth and value for our Group and all stakeholders, we continued to make good progress in our journey to become the number one STEM talent provider in the best global STEM markets. In this financial year, our key achievements included:

·	Market Share: Our net fee growth vs FY19: Remains ahead of peers in four out of our five largest markets (Germany, the Netherlands, the UK and Japan).
·	Conversion Ratio: Achieved a sector-leading operating profit conversion ratio of 18.2% in FY23. Our underlying conversion ratio, both before and after costs associated with the TIP, continued to exceed our pre-Covid performance. We remain committed to our ambition of achieving margins at 21% or higher in the mid to long-term, however as previously stated we expect current macro-economic headwinds to dampen margin progression in the short term.
·	People: Group-wide eNPS was 43 at the end of FY23; supported by DE&I networks and the launch of the third cohort of the Identify leader programme, our eNPS remains within the top quartile of Professional Services industry.
·	Planet: Reduced our carbon emissions by 8% versus FY19 (the base year). Furthermore, in the fight against climate change, we launched several actions to educate and influence sustainable behaviours across the business to ensure we make progress towards our SBTi-verified net zero targets which were announced in April 2023. We also grew our renewables business by 28% YoY, to represent 10% of Group net fees at FY23.
·	Positively impacted over 25,725 lives through delivering recruitment solutions and community programmes in FY23 alone.

Group net fees by geography, sector and division

Group net fees	% of Group	FY23 (£'000)	FY22 (£'000)	Variance
Group net fees	% of Group	FY23 (£'000)	FY22 (£'000)	Reported	Like-for-like ⁽¹⁾
Geographical mix ⁽²⁾
DACH	36%	148,925	148,922	-	-3%
USA	23%	96,410	111,545	-14%	-14%
Netherlands (including Spain)	19%	82,149	75,661	+8%	+6%
Rest of the Europe	17%	70,439	73,093	-3%	-4%
Middle East & Asia	5%	20,852	21,395	-	+3%
Total	100%	418,775	430,616	-3%	-4%

Skills mix
Technology	48%	202,510	203,184	-	-2%
Engineering	26%	108,820	92,083	+18%	+17%
Life Sciences	18%	75,516	95,172	-21%	-21%
Other	8%	31,929	40,177	-21%	-20%
Total	100%	418,775	430,616	-3%	-4%

Service mix
Contract	82%	343,502	334,215	+3%	+1%
Permanent	18%	75,273	96,401	-22%	-22%
Total	100%	418,775	430,616	-3%	-4%

⁽¹⁾ Unless specifically stated, all Growth rates in this announcement are expressed at constant currency.

⁽²⁾ In FY23, SThree has changed its reporting structure. The new groupings are: DACH, Netherlands (including Spain, which is managed from the Netherlands), Rest of Europe, USA and Middle East & Asia.

Business mix

The Group is well diversified, both geographically and by the skills; we place across multiple sectors. Our top three countries now represent 73% of Group net fees, with Germany accounting for 31%, USA 23% and the Netherlands 18% of Group net fees.

Our Contract business grew by 1% on a like-for-like basis and now represents 82% of the Group net fees. Our Permanent business, which now represents 18% of the Group net fees, saw net fees decline 22% in the year, reflecting challenging market conditions across all regions, together with the previously announced transition from Permanent to Contract in certain markets which is largely complete. Average Permanent headcount was down 17% YoY. Our market invest model enables us to continually review our markets to prioritise investments where we see opportunities for growth and the strongest returns.

Technology, which represents 48% of the Group net fees, declined by 2% YoY, while Engineering which represents 26% of net fees grew by 17%. These were offset by the decline in Life Sciences of 21% due to reduced global expenditure in that sector, though we note that net fees from that sector remain comfortably above pre-pandemic levels. Life Sciences now represents 18% of the Group net fees.

Operational review by reporting segment

DACH (36% of Group net fees)

	FY23	FY22	Variance
Performance highlights	FY23	FY22	Reported	Like-for-like
Revenue (£'000)	524,732	539,014	-3%	-6%
Net fees (£'000)	148,925	148,922	-	-3%
Average total headcount (FTE)	877	874	-	n/a

Impact of megatrends

We have seen the five megatrends continue to drive STEM demand, with only a slight downturn in our Life Science business, reflecting the global market challenge in this skills vertical.

There is still a war for talent in the DACH territories as employers struggle with a shortage of STEM talent. Retirement of the baby boomer generation and insufficient replacements from younger cohorts is intensifying STEM skill shortages. That, combined with still high inflation rates, is likely to lower GDP growth in DACH countries.

FY23 performance highlights

DACH region saw net fees decline by 3% YoY, with Contract down 1% and Permanent down 8%. This was primarily driven by our greater exposure to small- to medium-sized enterprise clients, which are more inclined to reduce investment in the face of greater macro-economic challenges than our enterprise clients. Germany, our largest country in the region (88% of net fees), saw Contract down 1% with overall net fees down 4%, driven by Engineering up 13%, offset by Technology and Life Sciences, down 4% and 16% respectively. Switzerland saw net fees grow 2% YoY driven by Engineering and Technology, with Austria net fees flat YoY.

Our people

Like most firms, we continually review our Employee Value Proposition to ensure we attract and retain talent. It includes our hybrid working policy, developing the office into an appealing place where people can connect, collaborate and receive coaching. We aim to encourage more staff into the office environment by enhancing our spaces as leases come up for renewal.

The Technology Improvement Programme (TIP), due to roll out in Germany at the beginning of FY24, will enable us to increase the productivity of our employees by giving them state-of-the-art tools to be more effective in their day-to-day work.

We invested in the development of our leadership through the Leading with Purpose programme. We will also be reviewing training delivery at all staff levels as it has become rather too online centred in response to the Covid 19 pandemic. Our aim is to introduce a more balanced mix of online and classroom training.

Reasons for confidence

We remain well positioned in flexible working with our strong ECM offering, whilst our Permanent business has increasingly moved up the salary/seniority range. Together, that enables us to be a full solution provider to our customers and grow the value of each of our clients.

In FY23, we continued to invest in growing our strategic accounts relationships and public sector business. The fact that we succeeded in our application for a permanent ECM licence will allow us to further invest in ECM and truly use ECM as a growth engine for our business in Germany.

In the short term, we will continue to operate under volatile market conditions, However, we remain confident that we can achieve our ambition of doubling our business by FY28, by being a partner of choice to our customers, employer of choice for our people and creating a high performance culture in which we all operate to the highest standards, proud to pursue our purpose.

USA (23% of Group net fees)

	FY23	FY22	Variance
Performance highlights	FY23	FY22	Reported	Like-for-like
Revenue (£'000)	328,293	338,221	-3%	-3%
Net fees (£'000)	96,410	111,545	-14%	-14%
Average total headcount (FTE)	473	539	-12%	n/a

Impact of megatrends

Significant investment into clean energy projects has been announced in the USA since federal clean energy incentives were signed into law. 83 new or expanded clean energy manufacturing facilities are creating demand for nearly 30,000 new jobs while the total number of renewable energy jobs in the USA is up 50% on 2019. Pharmaceutical companies have also been ramping up their AI operations in recent months with multi-billion dollar investments.

Looking at demographic change, the US has a relatively favourable profile compared to most large economies, but this is set to change with the share of the population over the age of 65 more than doubling by the end of this century. The shift will drive healthcare demand, exacerbating current staff shortages. By the 2030s, the country could be faced with a shortage of nearly 200,000 nurses and 124,000 physicians.

FY23 performance highlights

Despite the overall US recruitment market declining YoY, we saw a 10% growth in our top ten clients while the next ten grew by 26%. STEM is demonstrating its resilience against general economic headwinds. New job activity has been substantially impacted by a market-wide drop in hiring demand, underpinned by inflationary and interest rate pressures.

Overall, we saw a net fee decline of 14% YoY due to very strong prior year comparatives in Life Sciences. Engineering saw strong growth and we outperformed the market, but we did see market-driven declines in Life Sciences as job vacancies declined significantly due to the macro-economic environment.

Contract, supported by improved finisher rates, showed stronger resilience than Permanent, with a decline of 4% and 51% respectively. Engineering was up 16%, driven by demand for roles within Electrical Engineering, Project Management and Construction. Life Sciences was down 24% YoY, in line with the market conditions within this sector.

Our people

This year we have introduced a new operating model with the goal of simplifying and standardising ways of working, increasing cross selling and collaboration between industries. We also upgraded our hybrid working policy to provide our people with more opportunities for coaching, collaboration and community participation.

Reasons for confidence

Worth over $50bn, the USA has the largest STEM staffing market in the world. It exhibited resilience in FY23 after two consecutive years of high double-digit growth. It is projected to grow 5% in FY24.

We see immense opportunity in the US market, as we still only capture a relatively small share of wallet of our key clients. The US is the first region to benefit from our TIP, equipping our consultants with best-in-class tools and processes ahead of the rest of the Group. This builds a solid foundation for scaling our business profitably and winning market share.

The Engineering skills vertical offers particular potential. SThree is the ninth largest engineering staffing agency in the world and is eleventh largest in the USA.

Our focus in FY24 will be to capture market share through growth within our core vertical markets of Technology (Software Development and Salesforce), Engineering and Life Sciences (Clinical Research and Quality Assurance).

Netherlands (including Spain) (19% of Group net fees)

	FY23	FY22	Variance
Performance highlights	FY23	FY22	Reported	Like-for-like
Revenue (£'000)	367,643	323,963	+14%	+11%
Net fees (£'000)	82,149	75,661	+8%	+6%
Average total headcount (FTE)	422	389	+8%	n/a

Impact of megatrends

The region is responding to client demand for digitisation by investing in AI and cloud infrastructure. It is also seeing significant spend on decarbonisation. Although hydrogen is still in its infancy, we anticipate client demand in this sector to increase in coming years; therefore, we have been building our capability to secure a significant part of this market opportunity.

There is a shifting attitude to work. Remote and hybrid working expanded dramatically during the pandemic but the legal framework regulating them lagged behind and employers are realising they may need to fill the gap with their own policies. SThree, with its state-of-the-art systems for managing contract employment, is well placed to provide this support.

FY23 performance highlights

Like for like, this region saw net fees grow by 6% year on year, with strong growth in Contract, up 7%, partially offset by Permanent which was down 2%. The Netherlands, which represents 94% of the region, saw a net fees growth of 3%, with Engineering up 8% and Technology up 3% YoY driven by demand for skills within Enterprise Resource Planning (ERP), data and digitalisation projects. Spain had an impressive year, with net fee growth of 82% driven primarily by Technology.

Our people

Our focus this year has been on retention programs. We built on our partnership with Nyenrode University to provide leadership training for our business managers and tested improved reward communications with the introduction of total reward statements.

Reasons for confidence

Two megatrends continue to drive up demand in the Netherlands STEM labour market: the increasing requirement for specialist STEM skills linked to future technologies within Technology and Engineering skill verticals, particularly in relation to renewable energy, and the reduction in the talent pool that is resulting from the demographical changes in particular a growing proportion of an aging workforce retiring faster than ever.

In Spain we see a demand for contingent labour continuing to grow, particularly within the Retail, Banking and Financial, and Energy sectors.

Rest of the Europe (17% of Group net fees)

	FY23	FY22	Variance
Performance highlights	FY23	FY22	Reported	Like-for-like
Revenue (£'000)	399,862	394,351	+1%	-
Net fees (£'000)	70,439	73,093	-3%	-4%
Average total headcount (FTE)	499	547	-9%	n/a

Impact of megatrends

Our Rest of Europe region is made up of businesses in the UK, Belgium and France. In these markets, as globally, there is a shift from Permanent hires to Contract, in large part due to project-specific hiring. With strong extensions and increased contract lengths, we saw a 3% increase YoY in Contract net fees.

AI is a hot topic amongst customers. Our report, How the STEM World Evolves, revealed the rise of AI and automation caused concerns among STEM professionals, with 34% worried about consequent job losses. However, the impact of these two technologies on recruitment is yet to be seen and the prevailing view is that they will become another skill verticals, creating more job opportunities in STEM with a positive impact on the number of STEM specialists that companies employ.

The UK market is experiencing a green jobs boom as businesses seek to decarbonise and reach challenging net zero targets. Demand for talent in the clean energy sector is expected to grow YoY; reskilling and upskilling STEM specialists will be essential to bridge the skills gap in this area.

FY23 performance highlights

Net fees saw a decline of 4% YoY. Contract, which represents 95% of net fees for the region, grew 3%, with Permanent declining 59%, driven by both market conditions and the transition towards Contract.

The UK, the largest country market in the region (64% of net fees), saw net fees decline by 3% YoY, driven by Engineering, up 10%, as demand increased for roles within Project and Construction Management, Electrical and Mechanical Engineering, offset by decline in both Technology, down 5%, and Life Sciences, down 27%. Belgium saw net fees up 13% and France was down 3%. Average headcount for the region was down 9% YoY, with year-end headcount down 24%.

Our people

We built our Employee Value Proposition through several initiatives this year. All our most senior people managers completed the Leading with Purpose programme which gave them training in the four essential roles of leadership. This will enhance their, and their teams' performance, as they build a supportive culture. New compensation frameworks were adopted for all levels as we invested in base salaries on a targeted basis and reviewed reward schemes to ensure they are driving the right performance behaviours.

Reasons for confidence

Despite geopolitical and economic uncertainties, we remain confident about the region's growth prospects. The implementation of the TIP alongside our focus on STEM will be strong differentiators, and we remain confident this will enable the business to capture more market share across the region.

By implementing dynamic and responsive strategies, the region is actively adapting to meet the evolving needs of its customers. Besides flexible working offering, it involves a deep understanding of STEM market, knowing the right skills that are vital for clients' long-term success, and wider shifts in the recruitment environment. The region's overarching goal is to maintain focus and clarity, meticulously track leads and pipelines, and strategically invest in its people to help them succeed.

Middle East & Asia (5% of Group net fees)

	FY23	FY22	Variance
Performance highlights	FY23	FY22	Reported	Like-for-like
Revenue (£'000)	42,637	43,897	-3%	+1%
Net fees (£'000)	20,852	21,395	-	+3%
Average total headcount (FTE)	185	208	-11%	n/a

Impact of megatrends

Life Sciences and Research-led Healthcare were the key drivers behind demand for STEM talent in the region. Clients continued to appoint talent with skills to keep up with increasing technological complexity. Digitisation was also a significant demand driver as clients sought to harness the potential it offers for business transformation.

FY23 performance highlights

The region saw net fees increase by 3% YoY. Excluding the restructured businesses in Singapore and Hong Kong, net fees were up 20% YoY. Japan, which represents 45% of the region, was up 6% YoY, driven by Engineering and Life Sciences. Japan's Contract net fees were up 32% and Permanent up 5%. Strong performance was also reported in UAE with net fees up 41% driven by Engineering.

Our people

More than 60% of our regional leadership team have been with SThree since joining through our graduate programme. Such strong retention of some of our best talent demonstrates we have a compelling Employee Value Proposition and are a preferred employer in the sector. This was confirmed independently this year when we were recognised as a Great Place to Work-Certified™ company by the Great Place to Work® organisation, a global authority on workplace culture.

One of the attractions for graduates is the opportunities we offer for both mentors and mentees. Beyond their core job role, all our people have the opportunity to participate in community initiatives that promote DE&I and ESG goals.

Reasons for confidence

Our specialism in major STEM disciplines, combined with our global reach, gives us a significant edge over competitors in the region. Our office footprint and consultants immersed in the prevailing culture, provide the region with insights into clients' key challenges. We are well placed to build candidate relationships and source talent.

In line with our global strategy, we will continue to increase our investment into the Middle East & Asia region, with a focus on growing our business in Japan and Dubai.

chief financial officer's STATEMENT

We delivered a resilient performance underpinned by our strategic focus on Contract in STEM markets, while the wider macro-economic environment remained challenging.

Income statement

On a reported basis revenue for the year was up 1%[1] and amounted to £1.7 billion (FY22: £1.6 billion) while net fees declined by 3% to £418.8 million (FY22 £430.6 million). The strengthening of our two main trading currencies, the US Dollar and the Euro, against Sterling during the year, increased the total net fees by £5.6 million. Therefore, when presented on a constant currency basis, the net fees decreased by 4% YoY.

Net fee growth in our Contract business was driven by robust contract extensions from clients with demand for candidates with STEM skills across most of our regions, with net fees growth of 1%. This was led by the Netherlands region, which was up 7%, Rest of Europe, up 3%, and Middle East & Asia, up 29%, while DACH and USA were down by 1% and 4% respectively. This performance was driven by strong growth in Engineering, which was up 18% YoY, and Technology, up 1%, with Life Sciences down 14% reflecting global sector conditions. Our ECM proposition also continued to deliver encouraging performance and was up by 3% YoY. Group Contract net fees as a percentage of Contract revenue[2] remained consistent YoY at 21.7% (FY22: 21.7%), and at the end of the year Contract represented 82% of the Group net fees in the year (FY22: 78%).

The contractor order book closed at £183.5 million, down 3% YoY against a record prior year comparative, and accounts for approximately four months' worth of net fees, providing us with sector-leading visibility into FY24.

Permanent net fees were down 22% reflecting challenging market conditions across all regions, and our planned transition from Permanent to Contract in several markets, particularly in the USA and UK. Our largest Permanent market, DACH, reported a decline of 8%. Netherlands region was down 1%, and Japan was up 5%. Permanent average fee increased by 6% YoY in the year, with average permanent fee margin (net fees as a percentage of salary) now at 27.1% (FY22: 25.3%).

Operating expenses decreased by 3% YoY on a reported basis, amounting to £342.4 million (FY22: £353.1 million). This decline resulted from lower personnel costs as average headcount declined by 2% compared to FY22.

The reported operating profit was £76.4 million (FY22: £77.6 million), down 5% YoY in constant currency while the Group operating profit conversion ratio² increased to 18.2% (FY22: 18.0%). Operating profit conversion ratio reflects the ongoing exceptional levels of productivity, that despite the challenging macro environment dropped just 2% in the year, combined with tight cost control, whilst also benefiting from spend recognition timing on the Technology Improvement Programme (TIP) (without impacting delivery). Excluding the TIP, for which £3.8 million was expensed in FY23, an operating profit conversion ratio of 19.2% was achieved. The net currency movements versus Sterling were favourable to the operating profit, providing a £2.3 million benefit. Fluctuations in foreign currency exchange rates are expected to remain a material sensitivity to the Group's reported results. By way of illustration, each 1% movement in annual exchange rates of the Euro and US Dollar against Sterling impacts the Group's operating profit by £0.9 million and £0.3 million respectively per annum.

Net finance income

The Group received net finance income of £1.6 million as compared to net finance costs of £0.5 million in the previous year. This was driven by significantly higher interest rates applied to the Group's bank deposits.

Income tax

The total tax charge for the year on the Group's profit before tax was £21.9 million (FY22: £22.8 million), representing a full year effective tax rate (ETR) of 28.1% (FY22: 29.6%). The Group's ETR also varies depending on the mix of taxable profits by territory, non-deductibility of the accounting charge for LTIPs and other one-off tax items. The FY23 ETR is lower than in the prior year due to a change in the profit mix and FY22 being impacted by unrecognised losses arising from the restructure of Singapore and Ireland, and the closure of Hong Kong.

Overall, the reported profit before tax was £77.9 million, down 2% YoY in constant currency and up 1% on a reported basis (FY22: £77.0 million).

The reported profit after tax was £56.1 million, flat YoY in constant currency and up 3% on a reported basis (FY22: £54.2 million).

Earnings per share (EPS)

The EPS was 42.4 pence (FY22: 41.0 pence). The YoY movement is attributable to the lower operating profit offset by net interest earned on cash balances, lower Group ETR and a decrease of 0.1 million in the weighted average number of shares.

The diluted EPS was 41.5 pence (FY22: 39.9 pence). Share dilution mainly results from various share options in place and expected future settlement of vested tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods, depending on the profitability of the underlying tracker businesses and the settlement of vested arrangements.

Dividends and distributable reserves

The Board monitors the appropriate level of dividend, considering achieved and expected trading of the Group, together with its balance sheet position. The Board aims to offer shareholders long-term ordinary dividend growth within a targeted dividend cover² range of 2.5x to 3.0x through the cycle.

The Board has proposed to pay a final dividend at 11.6 pence (FY22: 11.0 pence) per share, which together with the interim dividend of 5.0 pence (FY22: 5.0 pence) per share, will give the total dividend of 16.6 pence (FY22: 16.0 pence) per share for FY23.

The final dividend, which amounts to approximately £15.3 million, will be subject to shareholder approval at the 2024 Annual General Meeting. It will be paid on 7 June 2024 to shareholders on the register on 10 May 2024.

Balance sheet

Total Group net assets increased to £222.9 million (FY22: £200.4 million), driven by the excess of net profit over the dividend payments, £6.2 million increase in intangible assets attributable to development costs capitalised under the TIP and favourable foreign currency movements, partially offset by cost of shares purchased by the Employee Benefit Trust. Net working capital, including contract assets, decreased by £2.1 million on the prior year, driven mainly by the slowdown in trading, including reduced contractor order book. Our days sales outstanding remained largely unchanged at 45.7 days (FY22: 45.2 days); a slight YoY increase was mainly due to a change of '>60 days' debt profile which went from 7% to 8% of the book. To reflect the more challenging macroeconomic backdrop, we have increased the provision for impairment of trade receivables by £4.9 million.

Our business model remains highly cash generative, and we have no undue concentration of repayment obligations in respect of trade payables or borrowings.

Investments in subsidiaries

The subsidiary undertakings principally affecting the profits and net assets of the Group are listed in note 24 to the Consolidated Financial Statements. The recoverable amounts of the Company's key trading subsidiaries remained strong in the current year. However, due to a continued underperformance in trading in Luxembourg and Canada, a small impairment charge of £0.1 million was recorded in the Company's separate books for FY23. This impairment charge did not impact the Group consolidated results.

An impairment loss of £0.9 million recognised by the Company in the prior year was in relation to three businesses, which were either restructured or closed down.

Tracker shares

The Group settled certain vested and unvested tracker shares during the year for a total consideration of £4.5 million which was determined using a formula set out in the Articles of Association underpinning the tracker share businesses. The consideration was settled in SThree plc shares; 320,457 new shares were issued and 928,483 of shares held by the EBT were utilised. The arrangement is deemed to be an equity-settled share-based payment arrangement under IFRS 2 Share-based payments. There was no charge to the income statement as initially the tracker shareholders subscribed to the tracker shares at their fair value.

All current tracker share businesses remaining in existence will continue to be reviewed for settlement based on the pre-agreed criteria each year, until the full closure of the scheme in the next few years. As at the year end, the valuation of the outstanding shareholdings was approximately £8m. These settlements may either dilute the earnings of SThree plc's existing ordinary shareholders if funded by a new issue of shares or result in a cash outflow if funded via treasury shares or shares held in the EBT.

Liquidity management

In FY23, cash generated from operations was £93.3 million (FY22: £64.4 million). The increase was primarily driven by a release in working capital, as the rate of new placement activity slowed down, partially offset by robust Contract extensions. Income tax paid increased to £19.5 million (FY22: £18.9 million).

Capital expenditure increased to £8.2 million (FY22: £3.7 million), due to the Group-wide TIP and related IT hardware costs. The capital expenditure also included costs of leasehold improvements and fitting out certain of our office portfolio.

The Group paid £14.9 million in rent (principal and interest portion) (FY22: £14.3 million). The Group spent £10.0 million (FY22: £9.9 million) for the purchase of its own shares to satisfy employee share incentive schemes. Cash inflows of £0.3 million (FY22: £0.5 million) were generated from Save As You Earn employee scheme.

Dividend payments were £27.4 million (FY22: £14.7 million, being the final dividend paid in June 2022) and there was a small cash outflow of £0.1 million (FY22: £0.1 million) representing distributions to tracker shareholders.

Foreign exchange had a significant positive impact of £2.1 million (FY22: positive impact £4.5 million).

Overall, the underlying cash performance in FY23 was strong, reflecting primarily improved working capital partially offset by the acquisition cost of own shares purchased by the Employee Benefit Trust. We started the year with net cash of £65.4 million and closed the year with net cash of £83.2 million.

Capital allocation and accessible funding

SThree remains disciplined in its approach to allocating capital, with the core objective at all times being to maximise shareholder value. The Group's capital allocation policy is reviewed periodically by the Board and was refreshed at the start of 2024:

•	Balance sheet - our intention is to maintain a strong balance sheet at all times to provide operational flexibility throughout the business cycle.
•	Dividend - we aim to pay a sustainable dividend, with a commitment to a through the cycle dividend cover range of 2.5x to 3.0x of EPS.
•	Deployment of capital prioritised in the order of:
1.	Organic growth: Investing in our people and ensuring sufficient working capital on hand to fund growth in the contractor order book while developing new business opportunities.
2.	Business improvement: Digitalising our business, putting in place the technology and tools that are key to driving both scale and higher margins.
3.	Acquisitions: Strict inorganic growth discipline, with a focus on complementary and value enhancing acquisitions.
4.	Capital return to shareholders: After all organic and inorganic opportunities within an appropriate time horizon have been assessed, further cash returns to shareholders may be considered.

The Group's capital allocation priorities are financed mainly by retained earnings, cash generated from operations, and a £50.0 million Revolving Credit Facility (RCF). This has remained undrawn during the year, but any funds borrowed under the RCF would bear a minimum annual interest rate of 1.2% above the benchmark Sterling Overnight Index Average. The Group also maintains a £30.0 million accordion facility as well as a substantial working capital position reflecting net cash due to SThree for placements already undertaken.

At the end of the current financial year, the Group did not draw down any of the above credit facilities (FY22: £nil).

On 30 November 2023, the Group had total accessible liquidity of £138.2 million, made up of £83.2 million in net cash (FY22: £65.4 million), the £50.0 million RCF and a £5.0 million overdraft facility (undrawn at the year end).

PRINCIPAL AND EMERGING RISKS

Principal risks and uncertainties affecting the business activities of the Group will be detailed within the Strategic Report section of the Group's 2023 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 pillars in FY23. While 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.

consolidated income statement

for the year ended 30 November 2023

£'000	Note	2023	2022

Continuing operations
Revenue	2	1,663,167	1,639,446
Cost of sales		(1,244,392)	(1,208,830)
Net fees	2	418,775	430,616
Administrative expenses	3	(336,076)	(349,301)
Impairment losses on financial assets		(6,343)	(3,763)
Operating profit		76,356	77,552
Finance income		2,257	141
Finance costs		(698)	(667)
Profit before income tax		77,915	77,026
Income tax expense	4	(21,864)	(22,824)

Profit for the year attributable to the owners of the Company		56,051	54,202
Earnings per share attributable to shareholders
pence
Basic	5	42.4	41.0
Diluted	5	41.5	39.9

consolidated statement of comprehensive income

for the year ended 30 November 2023


£'000	2023	2022
Profit for the year	56,051	54,202
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to income statement
Exchange differences on retranslation of foreign continuing operations	(1,437)	7,096

Items that will not be subsequently reclassified to profit or loss:
Net loss on equity instruments at FVOCI	-	(1)
Other comprehensive (loss)/income for the year (net of tax)	(1,437)	7,095

Total comprehensive income for the year attributable to owners of the Company	54,614	61,297

The accompanying notes form an integral part of these Consolidated Financial Statements.

consolidated statement of financial position
as at 30 November 2023
		As at 30 November	As at 30 November
£'000	Note	2023	2022
ASSETS
Non-current assets
Property, plant and equipment		31,116	35,249
Intangible assets	6	7,066	846
Deferred tax assets		5,799	4,616
Total non-current assets		43,981	40,711

Current assets
Trade and other receivables		345,120	363,884
Cash and cash equivalents	7	83,202	65,809
Total current assets		428,322	429,693

Total assets		472,303	470,404

EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital	8	1,349	1,345
Share premium	8	39,700	38,239
Other reserves		(3,597)	(802)
Retained earnings		185,432	161,610
Total equity		222,884	200,392

Current liabilities
Bank overdraft	7	-	423
Trade and other payables		200,132	216,842
Lease liabilities	9, 10	11,297	11,102
Provisions		7,373	7,871
Current tax liabilities		10,746	7,391
Total current liabilities		229,548	243,629

Non-current liabilities
Lease liabilities	9, 10	17,720	22,600
Provisions		2,151	3,783
Total non-current liabilities		19,871	26,383

Total liabilities		249,419	270,012

Total equity and liabilities		472,303	470,404

The accompanying notes form an integral part of these Consolidated Financial Statements.

consolidated statement of changes in equity
for the year ended 30 November 2023
	Share capital	Share premium	Capital redemption reserve	Capital reserve	Treasury reserve	Currency translation reserve	Fair value reserve of equity investments	Retained earnings	Total equity attributable to owners of the Company
£'000
Balance at 1 December 2021	1,337	35,466	172	878	(3,367)	(2,354)	(12)	126,033	158,153
Profit for the year	-	-	-	-	-	-	-	54,202	54,202
Other comprehensive income for the year	-	-	-	-	-	7,096	(1)	-	7,095

Total comprehensive income/(loss) for the year	-	-	-	-	-	7,096	(1)	54,202	61,297
Dividends paid to equity holders (note 11)	-	-	-	-	-	-	-	(14,650)	(14,650)
Distributions to tracker shareholders	-	-	-	-	-	-	-	(116)	(116)
Settlement of vested and unvested tracker shares	6	2,265	-	-	3,835	-	-	(5,629)	477
Settlement of share-based payments	2	508	-	-	2,851	-	-	(2,851)	510
Purchase of shares by Employee Benefit Trust	-	-	-	-	(9,900)	-	-	-	(9,900)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	-	4,999	4,999
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	-	(378)	(378)
Total movements in equity	8	2,773	-	-	(3,214)	7,096	(1)	35,577	42,239
Balance at 30 November 2022 and 1 December 2022	1,345	38,239	172	878	(6,581)	4,742	(13)	161,610	200,392
Profit for the year	-	-	-	-	-	-	-	56,051	56,051
Other comprehensive income for the year	-	-	-	-	-	(1,437)	-	-	(1,437)
Total comprehensive (loss)/income for the year	-	-	-	-	-	(1,437)	-	56,051	54,614
Dividends paid to equity holders (note 11)	-	-	-	-	-	-	-	(27,373)	(27,373)
Distributions to tracker shareholders	-	-	-	-	-	-	-	(94)	(94)
Settlement of vested and unvested tracker shares	3	1,198	-	-	3,987	-	-	(4,795)	393
Settlement of share-based payments	1	263	-	-	4,655	-	-	(4,870)	49
Purchase of shares by Employee Benefit Trust	-	-	-	-	(10,000)	-	-	-	(10,000)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	-	4,871	4,871
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	-	32	32
Total movements in equity	4	1,461	-	-	(1,358)	(1,437)	-	23,822	22,492
Balance at 30 November 2023	1,349	39,700	172	878	(7,939)	3,305	(13)	185,432	222,884
The accompanying notes form an integral part of these Consolidated Financial Statements.

consolidated statement of cash flows
for the year ended 30 November 2023
£'000	Note	30 November 2023	30 November 2022

Cash flows from operating activities
Profit before tax		77,915	77,026
Adjustments for:
Depreciation and amortisation charge		15,914	18,902
Loss on disposal of property, plant and equipment other than right-of-use assets		160	122
Gain on lease modification		-	(266)
Impairment of intangible assets		-	499
Loss on disposal of intangible assets		-	1,176
Finance income		(2,257)	(141)
Finance costs		698	667
Non-cash charge for share-based payments		4,871	4,999
Operating cash flows before changes in working capital and provisions		97,301	102,984
Decrease/(increase) in receivables		10,019	(59,288)
(Decrease)/increase in payables		(11,821)	17,174
(Decrease)/increase in provisions		(2,220)	3,510
Cash generated from operations		93,279	64,380
Interest received		2,257	141
Income tax paid		(19,495)	(18,922)

Net cash generated from operating activities		76,041	45,599

Cash flows from investing activities
Purchase of property, plant and equipment		(1,975)	(3,407)
Purchase of intangible assets	6	(6,237)	(265)

Net cash used in investing activities		(8,212)	(3,672)

Cash flows from financing activities
Interest paid	10	(698)	(667)
Lease principal payments	10	(14,250)	(13,721)
Proceeds from exercise of share options		264	510
Purchase of shares by Employee Benefit Trust	8	(10,000)	(9,900)
Dividends paid to equity holders	11	(27,373)	(14,650)
Distributions to tracker shareholders		(94)	(109)

Net cash used in financing activities		(52,151)	(38,537)

Net increase in cash and cash equivalents		15,678	3,390
Cash and cash equivalents at beginning of the year		65,386	57,502
Exchange gains relating to cash and cash equivalent		2,138	4,494

Net cash and cash equivalents at end of the year	7	83,202	65,386

The accompanying notes form an integral part of these Consolidated Financial Statements.

Notes to the Financial information

for the year ended 30 November 2023

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

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 2023 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 29 January 2024.

The auditors have reported on the Group's financial statements for the years ended 30 November 2023 and 30 November 2022 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 2022 were filed with the Registrar of Companies and those for the year ended 30 November 2023 will be filed following the Company's Annual General Meeting.

The Consolidated Financial Statements have been prepared in accordance with UK-adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and in conformity with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards, including interpretations issued by the IFRS Interpretations Committee.

Going concern

The Consolidated Financial Statements have been prepared on a going concern basis. The Directors have reviewed the Group's cash flow forecasts, considered the assumptions contained in the budget and medium-term forecasts, and considered associated principal risks which may impact the Group's performance in the 12 months from the date of approval of this year's financial statements and in the period immediately thereafter.

At 30 November 2023, the Group had no debt except for lease liabilities of £29.0 million. Credit facilities relevant to the review period comprise a committed £50.0 million RCF (with the expiry date of June 2026, with an extension option to 2027) and an uncommitted £30.0 million accordion facility, both jointly provided by HSBC and Citibank. These facilities remained undrawn on 30 November 2023. A further uncommitted £5.0 million bank overdraft facility (undrawn at the year end) is also held with HSBC.

In addition, the Group has £83.2 million of cash and cash equivalents available to fund its short-term needs, as well as a substantial working capital position, reflecting net cash due to SThree for placements already undertaken.

Despite the ongoing challenging market conditions, the Group has delivered a resilient net fee performance in FY23, supported by the strength of its well-established strategy. In addition, the Group's targeted investment in talent and digital infrastructure is progressing as planned, positioning the Group to scale with sustainable margins, in line with the 2024 ambitions. The Directors considered the current and possible future impact from the macro-economic environment, which is expected to remain volatile in the short term, on new placement activity and in turn on the Group's net fees performance. The Directors also considered expected cash outflows attributable to investments in people, talent acquisition and infrastructure in response to identified market opportunities and emerging risks.

Based on this analysis, the Directors have formed a judgement that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of approval of the Group's Consolidated Financial Statements, and there are no plausible downside scenarios that would cause an issue for the Group's going concern status. The Directors have therefore considered it appropriate to prepare the Group's Consolidated Financial Statements on the going concern basis.

Climate change consideration

Climate change is a significant issue for the world and the transition to a low-carbon economy will create both risks and opportunities for the Group. The management team has considered the impact of climate change in preparing these Consolidated Financial Statements in the areas as listed below. These considerations are not viewed to be key areas of judgements or sources of estimation uncertainty in the current financial year.

- The going concern and viability of the Group over the next five years, including the potential impact of climate-related risks, such as SThree's offices impacted by heightened physical risks affecting our operational ability to place contractors and service the existing contracts, resulting in lower revenue and income. This is subject to the ongoing assessment by the management team performed using three climate-related scenarios for 2023-2040. The assessment helps to continually test SThree's strategic resilience and its flexibility to adapt operations to ever-changing risks and opportunities as a consequence of climate change to drive continued growth.

- Useful lives of fixed assets: the impact of climate change is not considered to be material on our existing asset base including on factors like residual values, useful lives and depreciation methods which determine the carrying value of non-current assets. Although the Group has plans to invest in low-carbon technology as part of its net zero commitment, there is no immediate risk of material adjustment to the carrying values of the existing assets in the next financial year's results. Over the course of our net zero path, the existing fixed assets are expected to be fully depreciated within the next five to seven years.

- Recoverability of trade receivables and contract assets: the impact of climate-related matters could have an impact on the Group's clients in the future, especially, clients whose businesses/operations could be negatively affected by the introduction of emission-reduction legislation, energy transition plans or by extreme weather and other physical conditions, which could lead to increase in manufacturing costs, dilapidation of their asset base and their ability to pay debts. No material climate-related issues have arisen during the current year that have impacted our assessment of the recoverability of receivables. The Group's ECL allowance uses credit ratings which inherently include the market's assessment of the climate change impact on credit risk of our clients. Given the short-term maturity of trade receivables including contract assets, climate change is unlikely to materially increase our credit risk.

- Share-based payments: some performance conditions of the Long-Term Incentive Plan for members of the Executive Committee are linked and measured against ESG metrics since the 2022 financial year. This could impact the future amount of the recognition of the share-based payment expense in the Group income statement. However, as the ESG-related performance condition constitutes 10% of each grant, the impact is low.

- Segmental reporting: in our response to climate change and transition to a net zero target, there has been yet no change to the management information provided to, and reviewed by, the chief operating decision maker each month.

Whilst there is currently no material medium-term impact expected from climate change, the management team is aware of the ever-changing risks and will continue to regularly monitor these risks against judgements and estimates made in preparation of the Group's financial statements.

Accounting policies

The accounting policies used in the preparation of the Consolidated Financial Statements are consistent with those applied in the previous financial year, except for the adoption of new and amended standards effective as of 1 December 2022 as set out below.

New and amended standards effective in 2023 and adopted by the Group

The following amendments to the accounting standards, issued by the IASB and endorsed by the UK and EU, have been adopted by the Group and became applicable as of 1 December 2022. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards.

- Reference to the Conceptual Framework (amendments to IFRS 3 Business Combinations).

- Property, plant and equipment - proceeds before intended use (amendments to IAS 16 Property, Plant and Equipment).

- Onerous contracts - cost of fulfilling a contract (amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets).

- Annual improvements to IFRS 2018-2020 (amendments to the following standards: IFRS 1 First-time Adoption of IFRS, IFRS 9 Financial Instruments, IFRS 16 Leases and IAS 41 Agriculture).

New and amended standards that are applicable to the Group but not yet effective

As at the date of the financial information in this preliminary announcement, the following amendments to existing standards were in issue but not yet effective. Subject to the endorsement by the UKEB, these changes are effective for the SThree's financial year beginning 1 December 2023. These amendments are not expected to have a material impact on the Group in the current or future financial years.

- Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2).

- Definition of Accounting Estimates (Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors).

- Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12 Income Taxes).

- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12 Income Taxes).

- IFRS 17 Insurance Contracts, a standard that is ultimately intended to replace IFRS 4 Insurance Contracts.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

2. OPERATING SEGMENTS

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 making body, 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-making body to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operations Officer, the Chief Commercial Officer and the Chief People Officer, with other senior management attending via invitation.

In the current financial year, the Group has changed its reporting structure and going forward it will segment the business into the following reportable regions: DACH, Netherlands (including Spain, which is managed from the Netherlands), Rest of Europe, USA and Middle East & Asia. The comparative numbers have been restated in accordance with the new reporting structure. The reporting structure in the previous year was EMEA excluding DACH, DACH, USA and APAC.

The Group will continue to present separately the net fees of its five key markets: Germany, the Netherlands, the USA, the UK and Japan. In addition, what it previously was referred to sectors, has now been renamed as 'skills mix'. Finally, Contract and Permanent are from now on referred to as 'service mix'.

DACH region comprises Austria, Germany and Switzerland. Rest of Europe comprises the UK, Belgium and France, and Middle East & Asia includes Japan and UAE.

Countries aggregated into DACH and separately into Rest of Europe have similar economic risks and prospects, i.e. they are expected to generate similar average gross margins over the long term, and are similar in each of the following areas:

- the nature of the services (recruitment/candidate placement);

- the methods used in which they provide services to clients (independent contractors, employed contractors, and permanent candidates); and

- the class of candidates (candidates, who we place with our clients, represent skillsets in Life Sciences, Technology and Engineering disciplines).

The Group's management reporting and controlling systems use accounting policies that are the same as those described in these financial statements and the accompanying notes.

Revenue and net fees by reportable segment

The Group assesses 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.

	Revenue		Net fees
£'000	2023	2022 (restated)	2023	2022 (restated)
DACH	524,732	539,014	148,925	148,922
Rest of Europe	399,862	394,351	70,439	73,093
Netherlands including Spain	367,643	323,963	82,149	75,661
USA	328,293	338,221	96,410	111,545
Middle East & Asia	42,637	43,897	20,852	21,395
	1,663,167	1,639,446	418,775	430,616

Split of revenue from contracts with customers

The Group derives revenue from the transfer of services over time and at a point in time in the following geographical regions:

2023 £'000	DACH	Rest of Europe	Netherlands including Spain	USA	Middle East & Asia	Total
Timing of revenue recognition
Over time	483,491	396,354	358,122	316,866	29,382	1,584,215
At a point in time	41,241	3,508	9,521	11,427	13,255	78,952
	524,732	399,862	367,643	328,293	42,637	1,663,167

2022 (restated) £'000	DACH	Rest of Europe	Netherlands including Spain	USA	Middle East & Asia	Total
Timing of revenue recognition
Over time	495,268	385,772	315,371	315,134	28,778	1,540,323
At a point in time	43,746	8,579	8,592	23,087	15,119	99,123
	539,014	394,351	323,963	338,221	43,897	1,639,446

Major customers

In FY23 and FY22, no single customer generated more than 10% of the Group's revenue.

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:

	Revenue		Net fees
£'000	2023	2022	2023	2022
Germany	453,537	468,352	130,875	131,880
Netherlands	350,295	314,156	77,073	72,931
USA	328,293	338,221	96,410	111,545
UK	263,461	262,999	44,953	46,689
Japan	10,813	10,793	9,317	9,410
RoW ⁽¹⁾	256,768	244,925	60,147	58,161

	1,663,167	1,639,446	418,775	430,616

			30 November	30 November
£'000			2023	2022
Non-current assets
Germany			11,891	16,313
UK			11,458	5,374
Netherlands			5,678	2,149
Japan			2,730	4,144
USA			2,687	3,962
RoW ⁽¹⁾			3,738	4,153

			38,182	36,095

(1) RoW (Rest of the World) includes all countries other than listed.

Non-current assets do not include Deferred Tax Assets as they are not reviewed by the CODM.

The following segmental analysis by brands, recruitment classification and sectors (being the profession of candidates placed) has been included as additional disclosure to the requirements of IFRS 8 Operating Segments.

	Revenue		Net fees
£'000	2023	2022	2023	2022
Brands
Progressive	565,938	475,142	143,666	124,877
Computer Futures	538,710	564,844	137,591	143,932
Real Staffing Group	316,062	365,708	83,740	104,901
Huxley Associates	242,457	233,752	53,778	56,906
	1,663,167	1,639,446	418,775	430,616

Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.

	Revenue		Net fees
£'000	2023	2022	2023	2022
Service mix
Contract	1,584,215	1,540,323	343,502	334,215
Permanent	78,952	99,123	75,273	96,401
	1,663,167	1,639,446	418,775	430,616

	Revenue		Net fees
£'000	2023	2022	2023	2022
Skills mix
Technology	842,634	838,649	202,510	203,184
Engineering	415,357	341,850	108,820	92,083
Life Sciences	270,235	319,734	75,516	95,172
Other	134,941	139,213	31,929	40,177
	1,663,167	1,639,446	418,775	430,616

3. ADMINISTRATIVE EXPENSES

Operating profit is stated after charging/(crediting):

£'000	2023	2022
Staff costs	255,007	266,010
Depreciation	15,898	18,682
Amortisation	16	220
Loss on disposal of property, plant and equipment	160	122
Gain on lease modification	-	(266)
Impairment of intangible assets	-	499
Loss on disposal of intangible assets	-	1,176
Service lease charges - Buildings	2,176	2,426
Service lease charges - Cars	1,890	1,391
Foreign exchange losses	1,882	1,164

4. INCOME TAX EXPENSE

(a) Analysis of tax charge for the year

£'000	2023	2022
Current income tax
Corporation tax charged on profits for the year	23,679	23,409
Adjustments in respect of prior periods	(447)	(133)
Total current tax charge	23,232	23,276
Deferred income tax
Origination and reversal of temporary differences	(1,117)	(395)
Adjustments in respect of prior periods	(251)	(57)
Total deferred tax credit	(1,368)	(452)
Total income tax charge in the Consolidated Income Statement	21,864	22,824

(b) Reconciliation of the effective tax rate

The Group's tax charge for the year exceeds (FY22: exceeds) the UK statutory rate and can be reconciled as follows:

£'000	2023	2022
Profit before income tax for the Group	77,915	77,026
Profit before income tax multiplied by the standard rate of corporation tax in the UK at 23.0% (FY22: 19.0%)	17,920	14,635
Effects of:
Disallowable items	1,720	1,905
Differing tax rates on overseas earnings	2,524	5,590
Adjustments in respect of prior periods	(697)	(190)
Adjustments due to tax rate changes	(1)	(294)
Tax losses for which deferred tax asset was not recognised or derecognised	398	1,178
Total tax charge for the year	21,684	22,824
At the effective tax rate	28.1%	29.6%

£'000	2023	2022
Equity-settled share-based payments:
Current tax credit	69	196
Deferred tax charge	(37)	(574)
	32	(378)

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 2023, a deferred tax asset of £1.4 million (FY22: £1.1 million) was recognised in respect of these options.

On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK; the Act introduced a multinational top-up tax and domestic top-up tax as part of the UK's adoption of the OECD's Pillar Two Global Anti-Base Erosion rules. This will apply for accounting periods beginning on or after 31 December 2023. The Group has applied the exception under the Amendments to IAS 12 Income Taxes to not disclose information about deferred tax assets and liabilities related to the OECD Pillar Two Income Taxes.

5. EARNINGS PER SHARE

Basic earnings per share (EPS) is calculated by dividing the profit for the year attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year excluding shares held as treasury shares and those held in the Employee Benefit Trust (EBT), which for accounting purposes are treated in the same manner as shares held in the treasury reserve.

Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive ordinary shares arising from exercising employee stock options and tracker shares.

The following tables reflect the income and share data used in the basic and diluted EPS calculations.

£'000	2023	2022
Earnings
Profit for the year attributable to owners of the Company	56,051	54,202

million	2023	2022
Number of shares
Weighted average number of shares used for basic EPS	132.1	132.2
Dilutive effect of share plans	2.9	3.7
Diluted weighted average number of shares used for diluted EPS	135.0	135.9

pence	2023	2022
Basic EPS	42.4	41.0
Diluted EPS	41.5	39.9

6. INTANGIBLE ASSETS

During the year, the Group made good progress in executing the Technology Improvement Programme. Nearly £6.2 million in development costs were capitalised in the statement of financial position. In addition, the Group incurred £3.8 million in costs spent on research-related and administrative costs which were expensed immediately to the income statement. At the reporting date, all the costs capitalised in the statement of financial position were classified as assets under construction due to the ongoing testing procedures. Managements expects that these assets are likely to be brought into use in Q2 FY24 at the earliest. Accordingly, the asset amortisation is expected to start in the second half of the next financial year.

7. CASH AND CASH EQUIVALENTS

£'000	30 November 2023	30 November 2022
Cash at bank	83,202	65,809
Bank overdraft	-	(423)
Net cash and cash equivalents	83,202	65,386

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 approximate their fair values. Substantially all of these assets are categorised within level 1 of the fair value hierarchy.

The Group has four cash pooling arrangements in place at HSBC US (USD), HSBC UK (GBP), NatWest (GBP) and Citibank (EUR).

8. EQUITY

During the year 409,818 (FY22: 831,845) new ordinary shares were issued, resulting in a share premium of £1.5 million (FY22: £2.8 million). Of the shares issued, 320,457 (FY22: 623,219) were issued to tracker shareholders on settlement of vested and unvested tracker shares and 89,361 (FY22: 208,626) pursuant to the exercise of share awards under the Save As You Earn (SAYE) scheme.

Treasury Reserve

Treasury shares represent SThree plc shares repurchased and available for specific and limited purposes. No shares were utilised from the treasury reserve during the current and previous year. At the year end, 35,767 (FY22: 35,767) shares were held in treasury reserve.

Employee Benefit Trust

The Group holds shares in the Employee Benefit Trust (EBT). The EBT is funded entirely by the Company and acquires shares in SThree plc to satisfy future requirements of the employee share-based payment schemes.

For accounting purposes, shares held in the EBT are treated in the same manner as shares held in the treasury reserve by the Company and are, therefore, included in the financial statements as part of the treasury reserve for the Group.

During the year, the EBT purchased 2,198,735 (FY22: 2,519,652) of SThree plc shares. The average price paid per share was 455 pence (FY22: 393 pence). The total acquisition cost of the purchased shares was £10.0 million (FY22: £9.9 million), for which the treasury reserve was reduced. During the year, the EBT utilised 2,046,423 (FY22: 1,671,868) shares on settlement of vested and unvested tracker shares, LTIP awards and free shares. At the year end, the EBT held 1,923,458 (FY22: 1,771,146) shares.

9. LEASES

The leases which are recognised in the consolidated statement of financial position are principally in respect of buildings and cars. The Group's right-of-use assets and lease liabilities are presented below:

£'000	30 November 2023	30 November 2022
Buildings	24,772	27,862
Cars	1,934	1,932
Total right-of-use assets	26,706	29,794

Current lease liabilities	11,297	11,102
Non-current lease liabilities	17,720	22,600
Total lease liabilities	29,017	33,702

The consolidated income statement includes the following amounts relating to depreciation of right-to-use assets:

£'000	2023	2022
Buildings	11,955	13,849
Cars	1,219	1,152
IT equipment	-	74
Total depreciation charge of right-of-use assets	13,174	15,075

In the current year, interest expense on leases amounted to £0.6 million (FY22: £0.5 million) and was recognised within finance costs in the consolidated income statement.

The total cash outflow for leases in FY23 was £14.9 million (FY22: £14.3 million) and comprised the principal and interest element of recognised lease liabilities.

10. OTHER FINANCIAL LIABILITIES

The Group maintains a committed Revolving Credit Facility (RCF) of £50.0 million along with an uncommitted £30.0 million accordion facility, both jointly provided by HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility to £80.0 million. During the current and previous year, the Group did not draw down under these facilities. The Group has also an uncommitted £5.0 million overdraft facility with HSBC, of which £nil was drawn at the year end (FY22: £0.4 million).

The RCF is subject to financial covenants and any funds borrowed under the facility bear a minimum annual interest rate of 1.2% above the benchmark Sterling Overnight Index Average (SONIA). As the Group did not draw down under these facilities, the finance costs of £0.7 million (FY22: £0.5 million) were mainly related to lease interest.

The covenants, which the RCF is subject to, require the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The Group has complied with these covenants throughout the year.

Reconciliation of financial liabilities to cash flows arising from financing activities:

£'000
Balance at 1 December 2021	35,068
Cash flows:
Interest paid on bank overdrafts	(137)
Payments of principal and interest element of lease liabilities	(14,251)
Total cash flows	(14,388)
Lease increases	14,773
Lease termination	(2,294)
Other movements⁽¹⁾	543
Balance at 30 November 2022 and 1 December 2022	33,702
Cash flows:
Interest paid on bank overdrafts	(93)
Payments of principal and interest element of lease liabilities	(14,855)
Total cash flows	(14,948)
Lease increases	11,479
Lease terminations	(1,558)
Other non-cash movements⁽¹⁾	342
Balance at 30 November 2023	29,017

1. Other movements in FY23 and FY22 primarily comprised unwind of the discount on lease liabilities and forex revaluation.

11. DIVIDENDS

£'000	2023	2022
Amounts recognised as distributions to equity holders in the year
Interim dividend of 5.0 pence for FY22 (FY21: 3.0 pence) per share⁽¹⁾	6,605	3,965
Final dividend of 11.0 pence for FY22 (FY21: 8.0 pence) per share⁽²⁾	14,385	10,685
Interim dividend of 5.0 pence for FY23 per share⁽³⁾	6,383	-
	27,373	14,650

£'000	2023	2022
Amounts arising in respect of the financial year
Interim dividend of 5.0 pence for FY23 (FY22: 5.0 pence) per share⁽³⁾	6,383	6,632
Proposed final dividend of 11.6 pence for FY23 (FY22: 11.0 pence) per share⁽⁴⁾	15,327	14,547
	21,710	21,179

1. The FY22 interim dividend of 5.0 pence (FY21: 3.0 pence) per share was paid on 2 December 2022 to those shareholders on the register of SThree plc on 4 November 2022.

2. The FY22 final dividend of 11.0 pence (FY21: 8.0 pence) per share was paid on 9 June 2023 to shareholders on record on 12 May 2023.

3. The FY23 interim dividend of 5.0 pence (FY22: 5.0 pence) per share was paid on 8 December 2023 to shareholders on record at 10 November 2023. The £6.4 million in funds, required for settlement of the interim dividend, were first transferred to the share administrator before 30 November 2023.

4. The Board has proposed the FY23 final dividend of 11.6 pence (FY22: 11.0 pence) per share, to be paid on 7 June 2024 to shareholders on record at 10 May 2024. This proposed final dividend is subject to approval by shareholders at the Company's next Annual General Meeting on 25 April 2024, and therefore has not been included as a liability in these financial statements.

12. CONTINGENT LIABILITIES

Legal

The Group is involved in various disputes and claims which arise from time to time in the course of its business. These are reviewed on a regular basis and, where possible, an estimate is made of the potential financial impact on the Group. The Group has contingent liabilities in respect of these claims. In appropriate cases a provision is recognised based on advice, best estimates and management judgement.

The Directors currently believe the likelihood of any material liabilities to be low, and that such liabilities, if any, will not have a material adverse effect on its financial position.

13. RELATED PARTY DISCLOSURES

The Group's significant related parties are as disclosed in the Group's 2023 annual financial statements. There were no other material differences in related parties or related party transactions in the year compared to the prior year.

14. SUBSEQUENT EVENTS

There were no subsequent events following 30 November 2023.

15. ALTERNATIVE PERFORMANCE MEASURES (APMs): DEFINITIONS AND RECONCILIATIONS

In discussing the performance of the Group, comparable measures are used.

The Group discloses comparable performance measures to enable users to focus on the underlying performance of the business on a basis which is common to both periods for which these measures are presented. The reconciliation of comparable measures to the directly related measures calculated in accordance with IFRS is as follows.

APMs in constant currency

As the Group operates in 11 countries, and with many different currencies, it is affected by foreign exchange movements, and the reported financial results reflect this. However, the Group business is managed against targets which are set to be comparable between years and within them, for otherwise foreign currency movements would undermine the management ability to drive the business forward and control it. Within this preliminary results announcement, comparable results have been highlighted on a constant currency basis as well as the results on a reported 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 prior year foreign exchange rates to the current and prior financial year results to remove the impact of exchange rate.

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 period to period.

The calculations of the APMs on a constant currency basis and the reconciliation to the most directly related measures calculated in accordance with IFRS are as follows:

£'000, unless otherwise stated	2023
	Revenue	Net fees	Operating profit	Operating profit conversion ratio*	Profit before tax
	Revenue	Net fees	Operating profit	Operating profit conversion ratio*	Profit before tax	Basic EPS (pence)
Reported	1,663,167	418,775	76,356	18.2%	77,915	42.4
Currency impact	(24,489)	(5,602)	(2,280)	(0.3%)	(2,237)	(1.2)
In constant currency	1,638,678	413,173	74,076	17.9%	75,678	41.2

£'000, unless otherwise stated	2022
	Revenue	Net fees	Operating profit	Operating profit conversion ratio*	Profit before tax
						Basic EPS (pence)
Reported	1,639,446	430,616	77,552	18.0%	77,026	41.0

*Operating profit conversion ratio represents operating profit over net fees.

To calculate the YoY variances in constant currency, management compared the FY23 results in constant currency versus the FY22 reported results.

Other APMs

Net cash excluding lease liabilities

Net cash is an APM used by the Directors to evaluate the Group's capital structure and leverage. Net cash is defined as cash and cash equivalents less current and non-current borrowings excluding lease liabilities, as illustrated below:

£'000	2023	2022
Cash and cash equivalents	83,202	65,809
Bank overdraft	-	(423)
Net cash	83,202	65,386

EBITDA

In addition to measuring financial performance of the Group based on operating profit, the Directors also measure performance based on EBITDA. It is calculated by adding back to the reported operating profit non-cash items such as the depreciation of property, plant and equipment (PPE), the amortisation and impairment of intangible assets, loss on disposal of PPE and intangible assets, gain on lease modification and the employee share options charge. Where relevant, the Group also uses EBITDA to measure the level of financial leverage of the Group by comparing EBITDA to net debt.

A reconciliation of reported operating profit for the year, the most directly comparable IFRS measure, to EBITDA is set out below.

£'000	2023	2022
Reported operating profit for the year	76,356	77,552
Depreciation of PPE	15,898	18,682
Amortisation and impairment of intangible assets	16	719
Loss on disposal of PPE and intangible assets	160	1,298
Gain on lease modification	-	(266)
Employee share options charge	4,871	4,999
EBITDA	97,301	102,984

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 Group's profit for the year attributable to owners of the Company over the total dividend paid to ordinary shareholders.

£'000		2023	2022
Profit for the year attributable to owners of the Company	A	56,051	54,202
Dividend proposed to be paid to shareholders (note 11)	B	21,710	21,179
Dividend cover	(A ÷ B)	2.6	2.6

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.

£'000, unless otherwise stated		2023	2022
Contract net fees	A	343,502	334,215
Contract revenue	B	1,584,215	1,540,323
Contract margin	(A ÷ B)	21.7%	21.7%

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 is calculated by the external independent data-stream party.

pence, unless otherwise stated	2023	2022
SThree plc TSR return index value: three-month average to 30 Nov 2020 (FY22: 30 Nov 2019)	240.74	262.41
SThree plc TSR return index value: three-month average to 30 Nov 2023 (FY22: 30 Nov 2022)	365.25	355.43
Total shareholder return	51.7%	35.4%

16. ANNUAL REPORT AND ANNUAL GENERAL MEETING

The Annual General Meeting of SThree plc is to be held on 25 April 2024.

The 2023 Annual Report and Notice of 2024 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.

[1] Unless specifically stated, all growth rates in revenue and net fees are expressed in constant currency.

[2] The Group has identified and defined certain alternative performance measures (APMs). These are the key measures the Directors use to assess the SThree's underlying operational and financial performance. The APMs are fully explained and reconciled to IFRS line items in note 15 to this announcement.

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END

Companies

SThree (STEM)

Thursday, 21st November 2024

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