FY23 Half Year Trading Update

SThree plc

20 June 2023

 

20 June 2023

SThree plc

FY23 Half Year Trading Update

Resilient performance in H1 driven by our Contract business

SThree plc ("SThree" or the "Group"), the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics ('STEM'), today issues a trading update for the half year ended 31 May 2023.

H1 Highlights

·	Resilient performance with Group net fees down 2% YoY(1)  on a constant currency basis, against the strong post-Covid comparative period (H1 FY22 YoY growth: 25%) and backdrop of global macro-economic conditions.
·	Contract net fees up 3% YoY with growth across the majority of regions, and Contract now representing 81% of Group net fees (H1 FY22: 77%).
·	Permanent net fees down 19% YoY, reflecting both market conditions and tough comparatives, particularly in Life Sciences, together with our targeted investment towards Contract in specific markets.
·	In our largest three markets, which represent 73% of net fees, the Netherlands grew 3%, while Germany was down 1% and USA was down 11%.
·	Technology up 1% and Engineering up 17%, while Life Sciences was down 21% driven by global sector trends.
·	Contractor order book (2) remained flat YoY as robust extensions offset new placement activity.
·	Strong balance sheet, with £72 million net cash as at 31 May 2023 (31 May 2022: £48 million).
·	Technology Improvement Programme is on track and on budget, with sequenced rollout across the Group starting in late FY23 as previously announced.

Timo Lehne, Chief Executive, commented:

"The Group has delivered a robust net fee performance in the first half of FY23 with fees down 2% YoY on a constant currency basis against the strong post-Covid performance in H1 of FY22.  On a reported basis net fees were up 3%, as we benefited from FX tailwinds. The macro-economic environment has remained uncertain with varied effects across our markets impacting new placements. However, a continued healthy extensions performance has seen our Contract business (now representing 81% of Group net fees) grow 3% as our clients remain committed to retaining highly sought after skills. This demonstrates the strength of our well-established strategy, focused on STEM and flexible talent. 

We are delighted with the strategic progress we have made, centred on an analytical and fact-based approach of knowing where to play and playing where we can win. Our highly disciplined and targeted investment in talent acquisition within Contract remains a priority for the business. Our Technology Improvement Programme is on track and on budget and is key to delivering a differentiated proposition within the market, driving both scale and higher margins over the mid-to-long term.

Our long-term opportunity is unchanged, underpinned by structural megatrends which drive the acute need for scarce STEM talent.  In the short term we remain responsive to the macro backdrop and how that plays out on the mix of new placements and extensions, while tightly managing costs. Supported by a resilient business model and robust financial position, we remain well positioned to source and place the best STEM talent the world needs and will be in a position of strength once the macro-economic environment eases."

	H1	H1	H1 2023			Q2 2023		Q1 2023
Net fees	2023	2022	YoY (1)			YoY (1)		YoY (1)
Contract	£170.0m	£157.0m	+3%			-1%		+8%
Permanent	£38.6m	£46.1m	-19%			-25%		-12%
GROUP	£208.6m	£203.1m	-2%			-7%		+4%
Regions
DACH (3)	£74.5m	£70.5m	-			-7%		+8%
Netherlands (incl. Spain) (4)	£39.4m	£35.9m	+5%			+4%		+6%
Rest of Europe (5)	£35.2m	£35.4m	-2%			-7%		+4%
USA	£49.4m	£51.7m	-11%			-15%		-6%
Middle East & Asia (6)	£10.1m	£9.6m	+6%			-5%		+19%
GROUP	£208.6m	£203.1m	-2%			-7%		+4%
Top five countries
Germany	£65.7m	£62.8m	-1%			-8%		+7%
Netherlands	£37.3m	£34.6m	+3%			+1%		+4%
UK	£21.9m	£22.2m	-			-6%		+6%
USA	£49.4m	£51.7m	-11%			-15%		-6%
Japan	£4.4m	£4.5m	+2%			-2%		+7%
ROW (7)	£29.9m	£27.3m	+4%			-2%		+12%
Group	£208.6m	£203.1m	-2%			-7%		+4%
Service mix	H1 2023	H1 2022
Contract	81%	77%
Permanent	19%	23%
Skills mix	H1 2023	H1 2022
Technology	49%	47%
Life Sciences	19%	23%
Engineering	24%	21%
Other	8%	9%

Business performance highlights

Group net fees for Q2 were down 7% YoY against the strong post-Covid peak performance (Q2 FY22 YoY growth: 23%).

The Group delivered a resilient net fee performance in the first half of the year, down 2% YoY against the strong post-Covid peak performance in H1 of FY22. On a like for like basis (excluding our restructured businesses in Singapore, Hong Kong and Ireland) net fees were down 1% YoY. Contract, our strategic focus, was up 3% (also up 3% on a like for like basis) and now represents 81% of net fees. Our Permanent business was down 19% (or down 16% on a like for like basis), reflecting global market conditions and the continuing strategic transition from Permanent to Contract in several markets.   

Contract

·	Net fee growth of 3% YoY.
	o	Growth across majority of regions: DACH up 1% YoY, Netherlands up 7%, Rest of Europe up 5% and Middle East & Asia up 52%, while USA was down 2%.
	o	Strong growth in Engineering, up 20% YoY, with Technology up 3%. Life Sciences was down 14% in line with global sector trends.
·	The contractor order book remained flat YoY.

Permanent

·	Permanent net fees in the first half of the year were down 19% YoY, reflecting market conditions across all regions, together with the planned transition from Permanent to Contract, particularly in the USA and UK.
	o	Net fees declined across all regions with DACH down 3% YoY, Netherlands down 19%, Rest of Europe down 48%, USA down 43%, and Middle East & Asia down 10%.
	o	From a skills perspective, Technology was down 6%, Engineering down 5% and Life Sciences down 43%.

Headcount and productivity

·	Group average headcount in the first half was up 5% YoY, with Contract up 9% and Permanent down 10%.
·	Group period-end headcount was down 9% vs Q4 FY22, in part impacted by the restructure of the Singapore, Hong Kong and Ireland businesses. On a like-for-like basis, Group period-end headcount was down 7% vs Q4 FY22.
·	While we are managing costs tightly, we continue to prioritise targeted investments focusing on Contract in specific niches within sectors and markets that provide the best growth opportunities.
·	As expected, and as previously communicated, we have seen some normalisation of productivity from the exceptional levels experienced in H1 FY22 as new hires come on board. Productivity in the first half was down 7% YoY, however it remains 28% above pre-pandemic levels achieved in H1 FY19.
·	The Technology Improvement Programme is expected to deliver sustainable enhancements in productivity over the medium to long term.

Regional highlights

DACH saw net fees remain flat YoY.

·	Growth in Contract, up 1% YoY and Permanent down 3%.
·	Germany, our largest country in the region, also saw net fees decline 1%, with:
	o	Technology up 2% due to demand for roles within Cyber Security and Software Development.
	o	Engineering up 13%, with increased demand for Construction roles.
	o	Offset by Life Sciences, down 22%, driven by market conditions across that sector.

Netherlands region saw net fees grow 5% YoY.

·	The Netherlands, which represents 95% of the region, saw net fee growth of 3% driven by:
	o	Technology up 3% with higher demand for Project Managers, ERP Consultants, Data Engineers and Data Science roles.
	o	Engineering up 4% driven by increased demand for Process Engineers, Electrical Engineers and Health & Safety Advisors.
·	Spain saw strong growth of 63% in the first half driven by Technology.

Rest of Europe saw net fees decline 2% YoY.

·	Contract, which represents 94% of net fees for the region, grew 5%, with Permanent declining 48%, driven by both market conditions and the transition towards Contract, particularly in the UK.
·	The UK, our largest country in the region, saw net fees remain flat, with:
	o	Engineering up 3%, as demand increased for roles within Project and Construction Management, Electrical Engineering and Mechanical Engineering.
	o	Offset by declines in both Technology, down 2% and Life Sciences, down 22%.

USA saw net fees decline 11% YoY.

·	Contract, which represents 86% of net fees, was down 2% YoY driven by:
	o	Life Sciences, down 16% YoY in line with the market conditions for that sector.
	o	This was partly offset by Engineering up 23%, with increased demand for roles within Project Management and Electrical Engineering.
·	Permanent, which represents 14% of net fees, declined 43% driven by Life Sciences and the accelerated transition towards Contract during FY22.

Middle East and Asia saw net fees grow 6% YoY.

·	Japan, which represents 43% of the region, was up 2% YoY driven by Engineering due to demand for roles within Renewable Energy.
·	Strong performance in UAE with net fees up 46% driven by Engineering.

Balance sheet

SThree retains a strong balance sheet, with net cash at 31 May 2023 of £72m (31 May 2022: net cash £48m, 28 February 2023: net cash £64m). During H1 the Group purchased £10m in shares for the employee benefit trust to satisfy future settlement of existing awards. Total accessible liquidity of £125m comprises £72m net cash, an undrawn £50m revolving credit facility ('RCF'), which runs until 2025 (with options to extend it until 2027), and £3m of undrawn overdraft facilities. In addition, SThree has an undrawn £30m accordion facility as well as a substantial working capital position, reflecting net cash due to the Group for placements already undertaken. 

Analyst conference call

SThree is hosting a conference call for analysts and investors today at 8.30am to discuss the FY23 Half Year Trading Update. If you would like to register for the conference call, please contact [e-mail].

The Group will issue its FY23 Half Year Results for the six months ended 31 May 2023 on 25 July 2023. 

(1)	All YoY growth rates in this announcement are expressed at constant currency.
(2)	The contractor order book represents value of net fees until contractual end dates, assuming all contractual hours are worked.
(3)	DACH - Germany, Austria and Switzerland.
(4)	Netherlands (incl. Spain) - Netherlands and Spain, which is managed from the Netherlands.
(5)	Rest of Europe - UK, Belgium, France, Luxembourg and Ireland.
(6)	Middle East & Asia - Japan, UAE & Singapore.
(7)	ROW - All other countries we operate in.

The information contained within this announcement is deemed by the Group to constitute inside information under the Market Abuse Regulation (Regulation (EU) No.596/2014) as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018.

Enquiries:
SThree plc
Timo Lehne, CEO Andrew Beach, CFO	via Alma
Alma PR	[phone]
Hilary Buchanan Sam Modlin Will Ellis Hancock	[e-mail]

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 8,200 clients across 14 countries. Our Group's c.2,800 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.

- Ends -

Appendix

Following the reporting structure change at the start of FY23 the table below provides the historical reporting structure.

	H1	H1	H1 2023			Q2 2023		Q1 2023
Net fees	2023	2022	YoY (1)			YoY (1)		YoY (1)
Contract	£170.0m	£157.0m	+3%			-1%		+8%
Permanent	£38.6m	£46.1m	-19%			-25%		-12%
GROUP	£208.6m	£203.1m	-2%			-7%		+4%
Regions
DACH	£74.5m	£70.5m	-			-7%		+8%
EMEA excl DACH	£79.6m	£74.6m	+4%			-		+8%
USA	£49.4m	£51.7m	-11%			-15%		-6%
APAC	£5.1m	£6.3m	-14%			-22%		-4%
GROUP	£208.6m	£203.1m	-2%			-7%		+4%
Top five countries
Germany	£65.7m	£62.8m	-1%			-8%		+7%
Netherlands	£37.3m	£34.6m	+3%			+1%		+4%
UK	£21.9m	£22.2m	-			-6%		+6%
USA	£49.4m	£51.7m	-11%			-15%		-6%
Japan	£4.4m	£4.5m	+2%			-2%		+7%
ROW	£29.9m	£27.3m	+4%			-2%		+12%
Group	£208.6m	£203.1m	-2%			-7%		+4%
Service mix	H1 2023	H1 2022
Contract	81%	77%
Permanent	19%	23%
Skills mix	H1 2023	H1 2022
Technology	49%	47%
Life Sciences	19%	23%
Engineering	24%	21%
Other	8%	9%

 

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