SThree: FY18 Trading Update

 

14 December 2018

 

FY18 Trading Update

 

Growth across STEM sectors underpins gross profit and profit before tax ahead of expectations

 

SThree plc ("SThree" or the "Group"), the international specialist STEM(1) staffing business, is today issuing a trading update(2)  for the financial year ended 30 November 2018.

 

Highlights

 

• Adjusted profit before tax for the year expected to be slightly ahead of the top end of the current market consensus range(3)
• Strong finish to the year with Group gross profit ("GP") up 12% for both Q4 and for FY18
  • Robust growth across the Group, with ICT up 12%, Life Sciences up 8%, Engineering up 16% and Energy up 30%
  • Strong growth in Continental Europe, up 20%, with DACH(4) up 21% and Benelux up 23% and USA up 8%
  • UK&I productivity up 5% following the Q2 restructuring of our Permanent business in the region
  • 83% of Group GP generated from markets outside the UK&I (2017: 80%)
• Contract GP up 14%, with growth across all sectors - ICT up 12%, Life Sciences up 12%, Engineering up 14%, Banking & Finance up 4% and Energy up 33%
  • Strong exit rate on Contract, with a new record number of runners at year end
  • Contract GP now represents 72% of Group GP (2017: 71%)
• Permanent GP up 6%, with Continental Europe up 15% and Japan up 88%
• Group period-end sales headcount up 3% YoY and up 3% versus the third quarter position

 

(1) STEM - Science, Technology, Engineering and Mathematics

(2) All year on year financial growth rate %s in this announcement are expressed at constant currency

(3) Market expectations for adjusted profit before tax for the year ended 30 November 2018 are in the range of £49.0m to £51.4m, with a consensus of £50.3m

(4) DACH - Germany, Austria and Switzerland

 

 

Management Succession

 

The Board also announces that Gary Elden OBE will step down as Chief Executive Officer early in the new year, at a date yet to be determined but expected to be by the time of the Company's AGM in April, after leading the Company for six years. A process to appoint his successor is now underway.

 

Gary Elden, Chief Executive, commented:

 

"We are pleased to have delivered another strong quarter in Q4 continuing the momentum from Q2 and Q3, resulting in an overall GP result for the year of +12%. The Group is benefiting both from the broad geographic reach of its operations, with 83% of GP now generated in international markets, and from its focus on the best STEM markets, where the demand for niche, skilled candidates continues to be driven by a shortage of supply.

 

"Strong performances in Continental Europe, particularly from our market-leading businesses in the Netherlands and Germany, as well as the USA were key to the delivery of this result. Our Contract businesses continued to perform well, with GP increasing by 14% year on year and with Contract runners at the period end reaching a record level for the Group. We expect full year profit to be ahead of consensus.

 

"At the start of 2018 I stated that after two years of turbulent political, market and economic pressure, we entered the year in good shape. That turbulence and pressure has increased throughout the year and yet we have delivered strong results. Looking ahead to 2019, we are in better shape, and well positioned to continue to benefit from the growth opportunities in our chosen STEM markets.

 

"I have been privileged to be part of SThree for almost 30 years and am proud to have led the Group as CEO during a major period of growth and development. As today's results demonstrate, the Company is in great shape to make further progress and I look forward to following its continued development as a shareholder. I am grateful to the Board for their support and encouragement, and to SThree staff around the world for all their commitment and hard work."

 

James Bilefield, Chairman, commented:

 

"Gary has made a significant contribution to SThree since joining the Group in 1990, before being appointed to the Board in July 2008 and to the role of CEO in January 2013.  On behalf of the Board I would like to thank him for his unswerving commitment over the last three decades.  During his tenure as CEO, SThree has more than doubled its profitability and has scaled significantly in size and scope around the world, becoming a leading player in the STEM recruitment market.  Gary will leave SThree with a strong and experienced leadership team focused on delivering SThree's strategic priorities, and we have a clear and rigorous process in place to ensure a smooth transition to his successor.  Gary's precise leaving date will be confirmed in due course, and the search for his successor is underway to take the business forward to its next stage of growth and development."

 

 

Financial Highlights -
Group Gross Profit
			FY 2018		Q4 2018	Q3 2018	Q2 2018	Q1 2018
Gross Profit	FY 2018	FY 2017	YoY %		YoY %	YoY %	YoY %	YoY %
Contract	£232.0m	£203.4m	+14%		+15%	+14%	+16%	+11%
Permanent	£88.9m	£84.2m	+6%		+6%	+8%	+7%	+2%
Group	£320.9m	£287.6m	+12%		+12%	+13%	+13%	+8%
Continental Europe	£183.3m	£150.6m	+20%		+20%	+24%	+20%	+15%
USA	£66.6m	£64.4m	+8%		+8%	+8%	+16%	+1%
UK&I	£53.0m	£55.6m	-5%		-4%	-10%	-2%	-3%
Asia Pac & Middle East	£18.0m	£17.0m	+11%		+13%	+16%	+1%	+15%
Group	£320.9m	£287.6m	+12%		+12%	+13%	+13%	+8%
ICT	£141.9m	£124.6m	+12%		+18%	+14%	+13%	+5%
Life Sciences	£66.3m	£62.4m	+8%		+1%	+13%	+12%	+9%
Banking & Finance	£42.4m	£43.5m	-1%		+2%	-7%	+1%	-0%
Energy	£33.5m	£26.5m	+30%		+26%	+32%	+28%	+35%
Engineering	£30.5m	£25.9m	+16%		+16%	+15%	+20%	+14%
Other(5)	£6.3m	£4.7m	+28%		+24%	+33%	+25%	+32%
Group	£320.9m	£287.6m	+12%		+12%	+13%	+13%	+8%
Contract / Perm Split
Contract	72%	71%
Permanent	28%	29%
	100%	100%
Geographical Split
Continental Europe	57%	52%
USA	21%	22%
UK&I	17%	20%
Asia Pac & Middle East	5%	6%
	100%	100%
Sector Split
ICT	44%	44%
Life Science	21%	22%
Banking & Finance	13%	15%
Energy	10%	9%
Engineering	10%	9%
Other(5)	2%	1%
	100%	100%
(5) Other includes Procurement & Supply Chain and Sales & Marketing

 

Business performance

 

Group GP for the year was up 12% with growth across all regions except UK&I. In our UK&I business we drove improvements in productivity.

 

Contract GP was up 14%, with growth across all sectors. Contract growth was driven by Continental Europe, which was up 22% and USA up 14%. Continental Europe and USA combined now represent 78% of our Contract GP (2017: 74%).

 

Permanent GP was up 6%, driven by Continental Europe up 15% and Japan up 88%. This progress was offset by USA which was down 5% against strong comparatives in the previous year, and UK&I. As expected, UK&I GP was down 20%, following the planned restructure of our UK Permanent business in early Q2, which reduced the average sales headcount for the year by 25%. Permanent productivity across the Group improved by 7% over last year, as a result of the Group's strategy to focus on the best performing Permanent markets.

 

Group period end sales headcount was up 3% to 2,332, with Contract up 8%, in line with the Group's strategy, and Permanent down 6%. Contract represented 68% of total sales headcount at the period end.  Sequentially vs Q3, period end Group sales headcount was up 3%, with Continental Europe up 5%, USA up 1% and UK&I level. Average Group sales headcount for the year was up 8% with Continental Europe up 15% and USA up 11%.

 

The Group's move of its London-based support functions to Glasgow is progressing well and to plan with completion expected in Q1 2019.

 

Balance sheet

 

SThree remains in a strong financial position. Net debt at 30 November 2018 was circa £4m (30 November 2017: Net cash £6m), reflecting a strong financial performance, the working capital outflows associated with strong Contract growth in Q4, and the one-off exceptional cash costs of the move to Glasgow. The Group has a £50m revolving credit facility ("RCF") with HSBC and Citibank, which is committed to 2023.

 

Office Network

 

The Group has a network of 44 offices in 16 countries, of which 38 are outside the UK. The Group generated 83% of GP for the period from markets outside the UK&I (2017: 80%).

 

 

SThree is hosting an analyst conference call today at 0830 GMT. The details are as follows:

 

Telephone number: 0800 358 9473

 

For access to the call please enter PIN: 99322535#

 

A replay facility will be available for 90 days on 0800 358 2049 Passcode: 301273192#

              

The Group will issue its results for the financial year ended 30 November 2018 on 28 January 2019

 

- Ends -

 

  

Enquiries:
SThree plc	020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Senior Company Secretary Assistant/ IR Enquiries
Alma PR	020 3405 0205 SThree@almapr.co.uk
Rebecca Sanders-Hewett    Josh Royston Susie Hudson Sam Modlin

 

 

Notes to editors

 

SThree is a leading international STEM specialist staffing business, providing permanent and contract specialist staff to a diverse client base of over 9,000 clients. From its well-established position as a major player in the information and communications technology ('ICT') sector the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.

 

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 3,000 employees in sixteen countries.

 

SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STHR and also has a US level one ADR facility, symbol SERTY.

 

 

Important notice

 

Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. 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.