DJ SThree: Final results for the year ended 30 November 2017
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SThree (STHR)
SThree: Final results for the year ended 30 November 2017
29-Jan-2018 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to
REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
29 January 2018
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 2017
SThree, the international specialist staffing business, is today announcing its final results for
the year ended 30 November 2017.
"Encouraging overall result for 2017, with Group business profile continuing to remix to Contract
and international markets. Entered 2018 in good shape and well-positioned for further growth."
FINANCIAL HIGHLIGHTS
2017 2016 Variance (3)
Adjusted Reported Adjusted Reported Actual Constant
(1) (2)
Movement Currency
Movement
GBPm GBPm GBPm GBPm % %
Revenue 1,114.5 1,114.5 959.9 959.9 +16% +9%
Contract 203.5 203.5 173.3 173.3 +17% +10%
gross
profit
Permanent 84.2 84.2 85.4 85.4 -1% -8%
gross
profit
Gross 287.7 287.7 258.7 258.7 +11% +4%
profit
Operating 44.9 38.2 41.3 37.8 +9% -3%
profit
Conversion 15.6% 13.3% 16.0% 14.6% -0.4% -1.2%
ratio pts pts
Profit 44.5 37.7 40.8 37.3 +9% -3%
before
taxation
Basic 25.7p 21.5p 23.2p 21.2p +11% -1%
earnings
per share
Proposed 9.3p 9.3p 9.3p 9.3p - -
final
dividend
Total 14.0p 14.0p 14.0p 14.0p - -
dividend
(interim
and final)
Net cash 5.6 5.6 10.0 10.0 - -
(1) 2017 figures were adjusted for the impact of GBP6.7 million of exceptional strategic
restructuring costs.
(2) 2016 figures were adjusted for the impact of GBP3.5 million of restructuring costs.
(3) All variances compare adjusted 2017 against adjusted 2016 to provide a like-for-like view.
(4) FX impacted positively on our results YoY on a reported basis
OPERATIONAL HIGHLIGHTS
* Encouraging full year performance with strong Q4 and exit rate into 2018
* Adjusted profit before tax up 9% to GBP44.5m
* GP up 4%* YoY (up 11% on an as reported basis) and up 8%* YoY in Q4
* Growth in GP driven by USA (up 18%*) and Continental Europe (up 9%*), whilst UK&I remains
challenging (-14%*)
* 81% of GP now generated outside UK&I (FY 2016: 75%)
* Contract GP up 10%* YoY, with growth across all sectors
* Contract now accounts for 71% of Group GP (FY 2016: 67%)
* Permanent GP down 8%* YoY but productivity improved by 3%* YoY
* Foreign exchange increased reported operating profit by circa GBP5.0m and GP by cGBP18.1m
* Move of London-based support functions to Glasgow underway
* Final dividend maintained
* Variances at constant currency
Gary Elden, CEO, commented: "We have delivered an encouraging overall result for the year, with a
strong finish in the final quarter. Pleasing performances in the USA and Continental Europe,
particularly from our market-leading businesses in the Netherlands and Germany, were key to this
result. With 81% of our business now generated outside the UK and 71% of our GP generated by our
more resilient Contract business, our business profile has changed significantly over recent
years. After two years of turbulent political, market and economic conditions, we enter 2018 in
good shape, with a clear vision to be the number one STEM talent provider in the best STEM
markets.
"Looking ahead to 2018, the momentum of our Contract business and the strength of our
performances in the USA and Continental Europe leave us well-positioned for further growth."
SThree will host a live presentation and conference call for analysts at 0900 GMT today. The
conference call participant telephone details are as follows:
Dial in: +44 (0) 20 3003 2666
Call passcode: SThree
This event will also be simultaneously audio webcast, hosted on the SThree website at
www.sthree.com [1]. Note that this is a listen only facility and an archive of the presentation
will be available via the same link later.
SThree will be announcing its Q1 Trading Update on Friday 16 March 2018.
Enquiries:
SThree plc 020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/ Investor
Relations
Citigate Dewe Rogerson 020 7638 9571
Kevin Smith / Jos Bieneman
Notes to editors
SThree is a leading international 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 & 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 c2,800 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. Data from the
announcement is sourced from unaudited internal management information. Accordingly, undue
reliance should not be placed on forward looking statements.
Chief Executive Officer's Review
********************************
We have delivered an encouraging overall result for the year, with a strong finish in the final
quarter. Pleasing performances in the USA and Continental Europe, particularly from our
market-leading businesses in the Netherlands and Germany, were key to this result. With 81% of
our business now generated outside the UK and 71% of our GP generated by our more resilient
Contract business, our business profile has changed significantly over recent years. After two
years of turbulent political, market and economic pressure, we enter 2018 in good shape, with a
clear vision to be the number one STEM talent provider in the best STEM markets.
This year we also made some changes to SThree's leadership model which will help us to work in a
more effective and agile way in the future. With the creation of the new senior management roles
of Chief Sales Officer and Chief Operations Officer, we will be in a better position to align our
sales and operational strategies and ensure we have the right services, infrastructure and people
to execute our global growth strategy and provide our customers with the best possible
experience.
Growing Contract, driving Permanent profitability
We invested for future growth, with year end sales headcount up 10% year on year and up 7%
sequentially vs Q3 2017. We continued to grow Contract headcount (+15%) faster than Permanent
headcount (+3%), in line with our plan. The shift in favour of Contract is creating a business
that is much more resilient in times of uncertainty, providing stronger and more sustainable
profits. While in 2012 our business was evenly split between Contract and Permanent, we now have
65% of our sales headcount working on Contract recruitment. We have also created separate
management structures for our Contract and Permanent business in almost all territories to drive
accountability and focus.
Growing Contract
As I have been able to report every year since taking over as CEO, we enter our next financial
year with a record Contract book, passing a key milestone of 10,000 Contract runners to reach
10,197 at the end of the year, up 12% from last year. Contract GP returned to double digit year
over year (YoY) growth of 10%*, with a strong final quarter up 14%*. Contract growth YoY was
across all sectors and driven by Continental Europe, which was up 17%* and by USA, up 21%*.
Continental Europe and USA combined now represent nearly 70% of our Contract runners, up from 65%
in 2016.
Our traditional Personal Service Company/freelance model ("PSC") continues to perform well and we
are also generating increased business through our Employed Contractor Model ("ECM"). ECM is
structured such that the Group employs individuals directly and contracts them to clients. ECM is
the established contracting model in a number of countries, including the USA. With governments
across the world examining new ways to raise tax revenues to address budget deficits, our
business model is expected to shift further towards ECM over time. A key focus for 2018 is the
expansion and strengthening of supporting processes of ECM within our Contract business to
increase its market opportunity.
Driving Permanent Profitability
Investment in Permanent continued to be made on a highly selective basis in the year as we
focused on improving the profitability of this division. Permanent GP was down 8%* YoY, with
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average sales headcount down 10%, reflecting a 3%* improvement in Permanent productivity per head
over last year.
The USA posted a 12%* GP increase, driven by supportive Energy and Banking markets. This was
offset by declines in all other regions, with Continental Europe down 7%* and UK&I down 22%*.
Permanent recruitment is more sensitive to overall market sentiment and has been hit harder by
the political, market and economic uncertainty of recent years. In response, we have actively
reduced Permanent headcount in certain markets in order to improve overall profitability in our
Permanent business. Over the years, this has meant restructuring our UK, Benelux & France, USA,
APAC and Middle East (APAC & ME), Oil & Gas and Banking & Finance businesses. In markets with
significant Permanent opportunity such as the USA and Germany we continue to maintain a strong
Permanent offering.
Improving customer experience
Last year we rolled-out a major customer experience programme globally, using Net Promoter Score
(NPS) to capture our clients and candidates feedback at every stage of the customer journey.
Feedback has then been used to adapt our systems, processes and behaviours and we have already
seen significant improvements in our overall NPS results (+3.6% points) as well as in the volume
of data we capture.
From these findings, we have developed operating principles that place the customer at the heart
of everything we do - to build trust, to care and then act, to be clear and then to aim high. We
rolled these principles out across the business in the last quarter of 2017 and will continue to
reinforce them in 2018.
Investing in new systems, processes and infrastructure
Our processes, systems and infrastructure are crucial to the delivery of our sales strategy and
to providing the best customer experience. We are currently finalising a structure which will
provide us with a more holistic, strategic view of our global operational requirements and help
us to manage demand and resource for optimum delivery.
We have announced some significant changes this year, including the strategic restructuring and
relocation of our London-based support functions to a new office in Glasgow, which will provide a
more sustainable support structure as we continue to grow our business. We expect to
substantially complete the reorganisation and relocation during 2018, creating a centre of
excellence with a clear objective to reduce costs, while improving operational capability.
We have continued to transition our systems to a cloud-based marketing services structure and
have invested in new automation technology which gives us new and distinct ways to build a single
customer view and to communicate in a more personalised way.
We are also part way through a roll-out of a new customer/contractor portal and a new contract
management system. Both systems have been developed in response to contractor and customer
feedback.
Generating new revenue streams
Innovation and entrepreneurship are a key focus for the Group as we aspire to build a more
diverse portfolio of products and services.
We have created an internal system of Innovation which gives us greater ability to identify
promising new ideas and to test them quickly. We have invested c.GBP3.2 million in the year in a
number of external innovation start-ups (GBP1.2 million) and have created our own innovation
incubator (GBP2.0 million). We expect to increase the amount spent on our innovation incubator to
c.GBP3 million in 2018.
Key developments in 2017 included:
- Talent Deck, a new smart job board, focused on cultural fit and automated matching was launched
in the UK and has already attracted blue-chip technology brands. We expect to continue the
roll-out of Talent Deck and to win additional marquee clients in 2018.
- We prepared the ground for two other internally-developed initiatives to launch in 2018.
Showcaser allows a user to create and manage asynchronous video interviewsand is currently being
trialled with one of our brands. Hirestream combines a digital market platform with key
human-centred touch points. A pilot is planned in mid-2018.
In addition to unlocking internal ideas, we have also engaged with a number of start-ups in the
recruitment space, to identify whether we should make strategic investments or find other ways to
unlock the potential in these ideas. We made additional small investments totalling c.GBP1 million
in a number of HR technology start-ups:
- We supported the deployment of Right Staff by Ryalto Limited, a work scheduling app for
healthcare professionals in which we have invested, with a successful trial among shift workers
in the UK's National Health Service. This is currently being scaled up for a further roll-out.
- We signed a development agreement and invested in RoboRecruiter, a messaging bot specifically
designed for recruitment which engages with candidates without any human intervention.
- We invested in a HR vertical of The Sandpit Limited (HRecTech), an incubator with a successful
track record in marketing technology, which is now incubating HR technology businesses in the UK
and USA.
We will continue to look at potential additional investments where we see a good strategic fit.
Identifying and developing great talent
SThree's success depends on having highly skilled and motivated employees. We aim to find great
people and enable them to build meaningful careers inside the organisation.
We provide on-the-job learning programmes as well as online and classroom-based courses to
support our employee's careers at all stages. Our career management platform is leading edge and
helps our employees to develop their careers within the group.
This year saw the launch of our revised organisational purpose 'Bringing skilled people together
to build the future' and with it, support for our managers and leaders to bring to life the true
meaning of our work with our candidates and clients.
In 2017, we introduced our quarterly Employee Net Promoter Score (eNPS), replacing our annual
engagement survey, as a more dynamic way to capture regular feedback from our people. Over 70% of
our employees responded with feedback about their experience of working at SThree, as well as how
they view the services we offer our customers. eNPS will help us make the right changes based on
employee feedback and track what is working. Ultimately, it puts our people at the centre of
decisions that help to create a brilliant place to work.
As part of our ongoing commitment to creating an inclusive and diverse workforce, we have
introduced a new Female Leadership Development Programme: IdentiFy. Thirty high potential, future
female leaders from across the Group have been selected to participate in a 12-month development
programme. The programme is designed to support them to recognise and develop their leadership
strengths through facilitated learning, stretch assignments and executive sponsorship. Through
IdentiFy we hope to improve the gender balance at a senior level.
Operating Review
Group GP up 4%*, with a strong finish to the year with GP up 8%* in Q4.
The growth in GP was driven by Contract up 10%*, with growth across all sectors and strong
regional performances in Continental Europe up 17%* and USA up 21%*. Permanent GP was down 8%*,
with average sales headcount down 10%.
Breakdown of GP FY 2017 FY 2016
% %
Contract/Permanent Split
Contract 71% 67%
Permanent 29% 33%
100% 100%
Geographical Split
UK&I 19% 25%
Continental Europe 52% 49%
USA 22% 20%
Asia Pacific & Middle East 7% 6%
100% 100%
Sector Split
ICT 43% 45%
Banking & Finance 15% 16%
Energy 9% 8%
Engineering 9% 9%
Life Sciences 22% 21%
Other 2% 1%
100% 100%
GP Average Sales
Headcount
Growth YoY* FY 2017 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
GROUP FY +10% -8% +4% 71% 29% +5% -10% -1%
17
Regional Overview
Regionally, our GP growth was driven by a strong performance in the USA, up 18%*, and robust
growth in Continental Europe up 9%*, led by the Netherlands up 20%* YoY. The USA overtook the
UK&I (19% of Group GP) to become our second largest region (22% of Group GP) during the year
behind Continental Europe (52% of Group GP). Although the UK&I remains an important part of our
business, uncertainty created by the EU Referendum and the relative maturity of the recruitment
market have led us to focus on growth opportunities in other regions and to be cautious with our
investment in the UK&I business. As part of our regional market penetration plans, we expanded
our global footprint by opening four new offices in Continental Europe. However, as we reviewed
regional business performance, it became clear that our return on investment in certain other
regions was sub-optimal and we took action to restructure our Hong Kong office.
We have continued to roll out ECM through the year, introducing new offerings in Germany, and
improvements in our operating model globally. With governments turning to new means to address
their budget deficits, including the IR35 Intermediaries Legislation in the UK and the
Deregulering Beoordeling Arbeidsrelaties (DBA law) in the Netherlands, there is an increasing
risk to the traditional Personal Service Company contractor model. However, we are in a position
to provide service to clients that is highly compliant with the new legislation and we have a
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