The reported and adjusted EPS was 14.5 pence and 14.4 pence respectively (HY 2020: reported 6.4 pence and adjusted 6.1 pence) on continuing operations. The YoY growth is attributable to a significant improvement in trading performance, a decrease in the Group's ETR, offset by an increase of 0.4 million in the weighted average number of shares. Reported diluted EPS was 14.1 pence (HY 2020: 6.2 pence) on continuing operations. Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses and the settlement of vested arrangements.
The Board proposes to pay an interim dividend of 3.0 pence (HY 2020: nil pence; HY 2019: 5.1 pence), amounting to GBP4.0 million in total. This will be paid on 3 December 2021 to shareholders on record on 5 November 2021. As previously stated in the recent trading update of June 14, 2021, the Board expects dividend cover for the year as a whole to be in the range of 2.5x to 3.0x, which it considers to be prudent given ongoing uncertainty relating to the pandemic. Going forward, the Board expects that the level of cover will continue to be assessed in the light of prevailing trading conditions.
In HY 2021, cash generated from operations on an adjusted basis was GBP20.5 million (HY 2020: GBP42.7 million). It represented the improved adjusted EBITDA offset by the continued growth of the contractor order book increasing our working capital. Income tax paid increased to GBP9.7 million (HY 2020: GBP5.6 million) reflecting the improved underlying trading performance across our markets and sectors. In the prior period, the Group also benefited from the short-term government incentive to defer VAT payments; this stimulus provided the Group with a short-term cash relief of GBP5.1 million reducing working capital in HY 2020.
Capital expenditure decreased to GBP1.6 million (HY 2020: GBP2.1 million), the majority of which related to IT equipment (laptops, server refresh in data centres) and spend on assets designed to deliver the Group's strategic priorities under the fast-evolving market conditions.
The Group paid GBP6.8 million in rent (HY 2020: GBP6.7 million) and GBP0.2 million in net interest cost (HY 2020: GBP0.4 million) during the half year. The Group paid GBP2.5 million (HY 2020: GBP1.3 million) for the purchase of its own shares to satisfy employee share schemes in future periods. Cash inflows of GBP0.2 million (HY 2020: GBP0.8 million) were generated from Save As You Earn employee schemes. Only immaterial dividend payments were made to shareholders who had unclaimed dividends from previous years and subsequently electing to receive them (HY 2020: GBP6.7 million, being the interim dividend paid in December 2019). The final dividend 2020 was paid on 4 June 2021.
Foreign exchange had a moderate negative impact of GBP2.3 million (HY 2020: immaterial impact).
Overall, in the first half of 2021, the Group free cash conversion ratio3 decreased to 14% on a reported basis compared to the prior period of 215%, primarily reflecting increased working capital. We started the period with net cash of GBP49.9 million and closed the period with net cash of GBP47.5 million.
On 31 May 2021, the Group had total accessible liquidity of GBP102.5 million, made up of GBP47.5 million in net cash (HY 2020: GBP31.0 million), a GBP50.0 million Revolving Credit Facility, which is committed to 2023, and a GBP5.0 million overdraft. The increased net cash balance, achieved despite the growth in Contract placements made, is an encouraging performance and reflects the Group's keen focus on cash management. The Group also maintains a GBP20.0 million accordion facility as well as a substantial working capital position reflecting net cash due to SThree for placements already undertaken.
Any funds borrowed under RCF bear a minimum annual interest rate of 1.3% above the three-month Sterling LIBOR. During the current period, the Group did not draw down any of these facilities (HY 2020: GBP50.0 million). In the prior period, average interest rate paid on drawdown was 1.9%.
The Group remains in a strong financial position and has sufficient cash reserves to meet its obligations as they fall due for a period of at least 12 months from the date of signing of this Interim Financial Report. The Board therefore considers it appropriate to adopt the going concern basis of accounting in preparing the Condensed Consolidated Financial Statements. For further details, including our scenarios, please refer to note 1 of the financial statements.
PRINCIPAL and Emerging RISKS
At SThree we recognise the importance of ongoing risk management to deliver on our strategic pillars and strengthen our performance. Periodically, we adjust our approach as markets and operating landscapes evolve.
Emerging risk - climate change
In 2020 we committed to early adopting the recommendations of the Taskforce for Climate-related Financial Disclosure ('TCFD') which includes climate-related scenario analysis to identify and respond to the businesses' exposure to climate-related risks and opportunities.
During the first half of this year, we undertook a detailed climate-related scenario analysis project with an emphasis on the most material transitional risks and opportunities to SThree. By engaging in scenario analysis, we have explored a wide range of economic, regulatory, technological and societal conditions, and considered how SThree may respond under varying commercial and operating environments.
Within this work we have identified three key scenarios by which we assess the implications of climate change on our business: (1) Renewable led growth (orderly), (2) Disruptive change (disorderly), and (3) Fossil fuelled future (hot house world). Our scenarios, and the underlying data used in modelling, are based on the Network for Greening the Financial System's ("NGFS") climate scenario framework.
Although our own climate action will increasingly focus on the decarbonisation of our business, the implications of climate action have much further reach into how our clients operate and the skills they require. We have identified the following risks within our scenario analysis:
Market: ? Fossil fuel sector net fees will likely reduce within scenario 1 and 2. ? Maintaining market share in rapidly expanding markets such as low carbon transition.
Reputation: ? STEM skills are required across multiple sectors with emerging trends such as green tech. Sector aligned brand
strategies and cross selling opportunities may be missed. ? Shifting candidate and client preferences to eco-brands will make service delivery to high emitting clients
Political: ? Exposure to changing Government policy and varying investment in renewable energy infrastructure projects.
Following the recent completion of the climate-related scenario project we have mobilised an internal committee to develop our response to these risks. Our strategic planning is informed by these risks and how we limit exposure and maximise opportunities.
A full risk review and detailed mitigation plan will be included in our Annual Report and TCFD year report.
Identifying and maximising climate action opportunities
The transition to a low carbon economy requires STEM skills and climate-related scenario analysis has highlighted the growing opportunity for SThree as the only global pure-play STEM staffing specialist. The transition to a low-carbon future could lead to an increase in jobs in renewables to 29 million globally by 2030.
Additionally, low carbon innovations will create new STEM roles which are not currently in demand, or even may not yet exist. These opportunities are particularly prevalent in geographies with strong net zero ambitions, including the EU and the USA (under the Biden administration), where we have a large, growing market.
The opportunities identified are as follows:
Market ? Dynamic and flexible services ensure SThree is agile and responsive to changing markets under each scenario. ? Growth of clean energy and associated technologies requires the specialist STEM skills SThree provides.
Reputation ? Growth in sustainable procurement; sustainable supplier credentials such as SThree's climate leadership position
(Carbon Disclosure Project (CDP) and Financial Times Climate Leaders 2021 positioning) is a differentiator to
competitors. ? The growing brand value of green companies provides an opportunity to be a staffing partner to the growing number
of climate conscious businesses.
The opportunities identified through scenario analysis have, and will continue to inform, our strategic and financial planning.
Integrating climate-related risks and opportunities into our business strategy, activities and overall risk management
The outcome of the above analysis is the integration of emerging transitional climate risks within SThree Enterprise Risk Management and governance framework. The analysis and modelling also informs strategic planning and market growth considerations, for example our target to double the share of our global renewables business by 2024.
Climate-related risks and opportunities are discussed at the Environment, Social and Governance Committee which includes our Chair, CEO, CFO and Group General Counsel and will be reported to the Board on an annual basis.
Looking forward, we remain committed to early adoption of the TCFD recommendations and will provide a detailed report on our governance, strategy, risk management and targets and metrics in our 2021 Annual Report.
Full details of this integration will be reported in our Annual Report 2021.
Principal risks - trend and outlook
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