DJ SThree: Final Results
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SThree (STHR)
SThree: Final Results
28-Jan-2019 / 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.
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 2018
SThree, the international specialist staffing business, is today announcing its final results for the
year ended 30 November 2018.
FINANCIAL HIGHLIGHTS
2018 2017 Variance (3)
Adjusted Reported Adjusted Reported Actual Constant
(1) (2)
Movement Currency
Movement
GBPm GBPm GBPm GBPm % %
Revenue 1,258.2 1,258.2 1,114.5 1,114.5 +13% +13%
Contract 232.1 232.1 203.5 203.5 +14% +14%
gross
profit
Permanent 89.0 89.0 84.2 84.2 +6% +6%
gross
profit
Gross 321.1 321.1 287.7 287.7 +12% +12%
profit
Operating 53.9 47.5 44.9 38.2 +20% +20%
profit
Conversion 16.8% 14.8% 15.6% 13.3% +1.2% +1.2%
ratio (%) pts pts
Profit 53.4 47.0 44.5 37.7 +20% +20%
before
taxation
Basic 30.7p 26.6p 25.7p 21.5p +19% +20%
earnings
per share
Proposed 9.8p 9.8p 9.3p 9.3p +5% +5%
final
dividend
Total 14.5p 14.5p 14.0p 14.0p +4% +4%
dividend
(interim
and final)
per share
Net (4.1) (4.1) 5.6 5.6 - -
(debt)/cas
h
(1) 2018 figures were adjusted for the impact of GBP6.4 million of net exceptional strategic
restructuring costs.
(2) 2017 figures were adjusted for the impact of GBP6.7 million of exceptional strategic restructuring
costs.
(3) All variances compare adjusted 2018 against adjusted 2017 to provide a like-for-like view.
OPERATIONAL HIGHLIGHTS
* Strong full year financial performance, ahead of expectations
* Growth in gross profit ('GP') driven by Continental Europe (up 20%*), USA (up 8%*), and APAC & ME
(up 11%*)
* Restructured UK&I delivering in line with expectations, with GP down 5%* and productivity up 5%*
* 83% of GP now generated outside UK&I (2017: 81%)
* Contract GP up 14%* YoY, with growth across all sectors
* Permanent GP up 6%* YoY, with Permanent productivity up 7%
* Contract accounted for 72% of Group GP (2017: 71%)
* Successful relocation of circa 240 roles from London to Centre of Excellence in Glasgow
* Final dividend up 0.5p to 9.8p (2017: 9.3p), with cover now in target range of 2.0 to 2.5 times
* Strong Q4 exit run rate underpins expectations heading into 2019
* Variances in constant currency
Gary Elden, CEO, commented: "The Group continued to make good progress throughout 2018. This resulted
in a strong financial performance which, demonstrating our resilience, was delivered despite the
ongoing macro-economic and political uncertainties. Alongside the financial metrics, we delivered
further structural and operational progress which will enable us to attain our vision of being the
number one Science, Technology, Engineering and Mathematics ('STEM') recruiter in the best STEM
markets. We are on track with the delivery of the five-year plan as set out at the November 2017
Capital Market Day."
"Looking forward to the year ahead, our post-year end trading is in line with expectations and we
remain well positioned to benefit from the growth opportunities in our chosen STEM markets."
SThree will host a live presentation and conference call for analysts at 0930 GMT today. The
conference call participant telephone details are as follows:
Dial in: 0800 358 9473
Call passcode: 21768800#
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 15 March 2019.
Enquiries:
SThree plc 020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Company Secretariat
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Josh Royston
Susie Hudson
Sam Modlin
Notes to editors
SThree is a leading international specialist recruitment 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 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
Progressive, Computer Futures, Huxley Associates and 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. 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
Overview[1]
The Group continued to make good progress throughout 2018. This resulted in a strong financial
performance which, demonstrating our resilience, was delivered despite the ongoing macro-economic and
political uncertainties. Alongside the financial metrics, we delivered further structural and
operational progress which will enable us to attain our vision of being the number one Science,
Technology, Engineering and Mathematics ('STEM') recruiter in the best STEM markets. We are on track
with the delivery of the five-year plan as set out at the November 2017 Capital Market Day.
At the start of 2018, I stated that after two years of political, market and economic pressure, we
entered the year in good shape. That turbulence and pressure increased throughout the year and yet we
delivered a creditable performance. As we enter 2019, I believe that we are in even better shape.
The STEM markets in which we operate continue to be affected by the ongoing global shortage of
skilled workers and the resulting supply and demand imbalances which underpin the need for our
services.
Group gross profit ('GP') was up 12%* in the year. The growth was largely delivered, as expected,
through our key territories of Continental Europe and the USA; the former was driven by our
market-leading businesses in Germany and the Netherlands which together saw growth of 20%*, whilst
the latter was up 8%*. We also made improvements in our other target markets, including a stand-out
performance from our growing team in Japan, up 85%*. From a sector point of view, we saw robust
growth across the Group, with Information and Communication Technology ('ICT') up 12%*, Life Sciences
up 8%*, Engineering up 16%* and Global Energy up 30%*.
Our specialist focus on STEM and being in the right STEM markets is helping us to build a growing
reputation, using a multi-brand approach where each brand is well regarded within its own specialist
field. This is a key differentiator for SThree. In technology, for example, where other companies
position themselves as IT specialists, we are recognised as experts in specific fields such as JAVA,
Salesforce or .Net. This approach is the same across all our markets, so clients know that we can
access the very best people for highly skilled positions.
The Group is globally diversified, but at the same time specialises at a local level. We can source
the right people for clients in multiple territories whilst also understanding the nuances and
dynamics of each individual market. These include legislative requirements where our local knowledge
can help us to advise clients on choosing the right contracts and also help successful candidates
navigate the necessary requirements.
The Group's central purpose is 'Bringing skilled people together to build the future', and we have
six core principles that will enable us to achieve this purpose and generate returns for all of our
stakeholders. These are: grow and extend regions, sectors and services; develop and sustain great
customer relationships; focus on Contract, drive Permanent profitability; generate incremental
revenues through innovation and M&A; build infrastructure for leveraged growth; and find, retain and
develop great people. We have made considerable progress against the majority of our strategic
priorities. I will touch on two of them in more detail below with our Chief Sales Officer and Chief
Operational Officer providing further detail on the other four aspects.
Find, retain and develop great people
One of the most pleasing aspects of the year was the ongoing development of the Group's culture.
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DJ SThree: Final Results -2-
Having collectively agreed on what kind of organisation we want to be and the principles to which we
would hold ourselves, it has been particularly rewarding to see adoption across the Group and the
benefits are already being seen. We have a vision that is shared across all of our operations and the
mindset has noticeably changed from thinking as individuals to considering wider Group opportunities,
shifting from a 'me' to a 'we' culture.
We have started to see the benefits of changes that we made about a year ago, including the
appointments of Dave Rees as Chief Sales Officer and Justin Hughes as Chief Operating Officer. As
anticipated, this has helped us 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.
Pleasingly, the year's results were achieved despite the inevitable disruption caused by relocating
our London-based support services to Glasgow where we have created a Centre of Excellence. All roles
were fulfilled through our own recruitment teams and the project has delivered ahead of our
expectations. Any disruption caused was addressed promptly and professionally and our customers
experienced a smooth transition. We are delighted with the progress being made by the Glasgow team
which will give us greater conversion margin and competitive advantage.
Cultural changes do not happen overnight and there is still plenty for us to do. Our Female
Leadership Development Programme, IdentiFy, has been running throughout the year. It was introduced
to help us identify and nurture top female staff and give them the tools and support that they need
to thrive, as in the past we have seen female staff as a proportion of the total drop away when they
reach management levels. It has already given us greater insight, with initial feedback suggesting
that female candidates will put themselves forward for a role only where they feel comfortable in
executing 80% of the tasks involved in that role, whereas the corresponding figure for male
applicants is 20%. Through this level of understanding we can take initiatives to redress that
balance and encourage females to stay with us longer and progress further. This mirrors many of the
initiatives that we are conducting externally on behalf of our clients to ensure that female talent
is able to thrive in all of the STEM industries. During the year we have seen 14 female promotions to
management positions across the Group (out of 27 participants) with one to Director level.
We have made a great start in bringing our people together and encouraging them to behave in a way
that is representative of our five Leadership Principles, Know Me, Focus Me, Develop Me, Care For Me
and Include Me, providing the necessary coaching and training to help them succeed. As a result, I
believe that we are becoming increasingly meritocratic and expect that trend to continue.
Generate incremental revenues through innovation and M&A
Ours remains a people business and one which thrives on the strength of its relationships. Our
clients are looking for highly skilled workers and they choose us to source them because of our
specialist sector focus and expertise in all aspects of our chosen markets. As such we believe that
we are resilient to pure play technology competition that naturally suits more commoditised
offerings.
At the same time, our extensive industry expertise means that we are able to develop tools that can
help deliver different products for different markets, diversifying our business and opening up new
revenue streams where clients and candidates are less focused on the service elements that are so
important in our chosen STEM markets. During 2018, we made significant progress with both our
HireFirst and Showcaser initiatives.
HireFirst is an easy to use platform that uses Artificial Intelligence ('AI') to offer candidates
live matches to a diverse spectrum of roles and companies, whilst allowing companies the opportunity
to market their employer brand and attract the best people. It was officially launched in beta
testing in October in both Paris and London and I am pleased to say that the early results are
encouraging.
Showcaser is a video platform which gives candidates the ability to highlight certain aspects of
their CV, career to date or other areas that they may choose to differentiate themselves. Showcaser
was exhibited at UNLEASH Amsterdam in November and, again, the feedback has been encouraging.
We would not anticipate material revenue from HireFirst or Showcaser in 2019 but do believe they have
the ability to generate strong returns on investment over the medium term.
Management succession
Having been with the Company for nearly 30 years and as CEO for the last six, I shall be stepping
down before the Annual General Meeting of Shareholders being held on 24 April 2019. The process for
finding my successor is well underway. I am very proud of everything that we have achieved as a
business in that time and, as these results demonstrate, I will be handing over the reins of a
business that is in very good shape. I will be fully committed to the role until that time and will
work with the Board and the leadership team to ensure a smooth handover to my successor.
Outlook
At the start of 2018, I stated that after two years of turbulent political markets and economic
pressure we entered the year in good shape. Despite that turbulence and pressure increasing
throughout the year, we delivered a strong set of results. Looking forward to the year ahead, our
post-year end trading is in line with expectations and we remain well positioned to benefit from the
growth opportunities in our chosen STEM markets.
CHIEF SALES OFFICER'S OPERATING REVIEW
Group[2]
Gross Profit 2018 2017 YoY Variance*
Contract GBP232.1m GBP203.5m +14%
Permanent GBP89.0m GBP84.2m +6%
Group GBP321.1m GBP287.7m +12%
2018 was a year of strong growth across the Group, with both Contract and Permanent showing an
increase in gross profit ('GP'). Permanent was up 6%*, with productivity in the division increasing
by 7%. Reflecting the industry megatrends driving our markets, and the Group's focus, the Contract
division grew more strongly, up 14%*. In line with our strategy, the mix of Contract GP increased
slightly to represent 72% of total Group GP, up from 71% in 2017.
Regionally we saw stand out performances across the key regions of Germany, the Netherlands, and
Japan. We also saw continued growth in the USA. These strong performances were driven by a mixture of
structural growth in our markets, strong management execution and the benefits of our strategic
business decisions becoming realised. We also saw growth in all but one of our sectors within STEM,
with Information and Communication Technology ('ICT') up 12%*, Life Sciences up 8%*, Energy up 30%*
and Engineering up 16%*. Banking & Finance was broadly level year on year.
Breakdown of GP 2018 2017
Contract/Permanent Split
Contract 72% 71%
Permanent 28% 29%
100% 100%
Geographical Split
Continental Europe 57% 52%
USA 21% 22%
UK&I 17% 19%
Asia Pacific & Middle East 5% 7%
100% 100%
Sector Split
ICT 44% 43%
Life Sciences 21% 22%
Banking & Finance 13% 15%
Energy 10% 9%
Engineering 10% 9%
Other 2% 2%
100% 100%
Regions
Gross Profit 2018 2017 YoY Variance*
Continental Europe GBP183.3m GBP150.6m +20%
USA GBP66.7m GBP64.4m +8%
UK&I GBP53.1m GBP55.7m -5%
Asia Pacific & Middle East GBP18.0m GBP17.0m +11%
Group GBP321.1m GBP287.7m +12%
SThree is a well-diversified business by geography, with non-UK GP now representing 83% of the
Group's total GP. SThree is strategically located in regions where there are clear growth
opportunities within STEM industries, and we are pleased that this resulted in growth across the vast
majority of our businesses in the year.
SThree built upon its strong position in Continental Europe, with GP up 20%*, driven by strong growth
in both DACH (up 21%*) and Benelux, France & Spain (together up 18%*). Our key aims in this region
are to dominate the STEM space in both Germany and the Netherlands. We delivered a particularly
strong performance in the Netherlands, which is a key business hub for many multi-national companies,
with GP up 25%*. During the year, we opened a new location in Eindhoven, improving client proximity
and reaffirming our position as the market leader in STEM professional recruitment. In our largest
country of operation, Germany, the team delivered another year of strong growth, with GP up 18%* year
on year. Germany benefited from the expansion of its Contract service to include ECM, which we
launched in 2017.[3]
The USA saw robust GP growth of 8%* year on year, as we expanded our office footprint with a new
office in Washington DC, having previously serviced this market remotely from New York. This growth
was pleasing given the organisational changes implemented in the region in Q1 2018, which included
the move from a regional to brand management structure.
The increased economic uncertainty seen in the UK and Ireland continued to impact the region, causing
overall GP to decline by 5%*. The UK is a mature recruitment market and is seeing slower industry
growth than other geographies, although it remains a strategic priority for the Group. In the first
half of 2018, we restructured parts of our Permanent business, consolidating into key hubs and
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implemented a change of management. These actions showed clear signs of delivery with Permanent
productivity in the region up by 7%* on the prior year. As expected, the Contract business
demonstrated its resilience, remaining broadly stable.
Our Asia Pacific & Middle East ('APAC & ME') businesses delivered growth of 11%*. This was driven
largely by an excellent performance from the team in Japan, delivering GP up 85%* year on year. Japan
is an important technical market, with an immature recruitment industry, and the Group has
capitalised well on these opportunities. Japan now represents 29% of the APAC & ME GP, up from 17% in
2017. The Middle Eastern team also capitalised on its specialist knowledge, driving growth from
Contract placements across the Energy and Banking & Finance sectors.
Sectors
Gross Profit 2018 2017 YoY Variance*
ICT GBP142.0m GBP124.7m +12%
Life Sciences GBP66.3m GBP62.4m +8%
Banking & Finance GBP42.4m GBP43.5m -1%
Energy GBP33.4m GBP26.5m +30%
Engineering GBP30.6m GBP25.9m +16%
Other GBP6.4m GBP4.7m +28%
Group GBP321.1m GBP287.7m +12%
Our largest sector continues to be ICT and our strong technology capability across all verticals is
becoming increasingly recognised across our key regions. ICT represented 44% of Group GP, driven by
an increase in GP across Continental Europe of 22%*. In total, ICT GP increased by 12%*, with the
year-end headcount up 7%.
Our Life Sciences sector is already a market leader across several of our regions, and we saw another
robust performance delivered across the Group, with GP up 8%* year on year. This was driven by strong
performances in both APAC up 29%* and Benelux, France & Spain up 15%*. Additionally, DACH and the USA
delivered solid growth of 8% and 6% respectively.
Banking & Finance was down 1%* year on year, with Contract GP up 4%*, driven by a robust performance
in Continental Europe, where average headcount was up 5% on the prior year. The decline in Permanent
GP seen in the UK and the USA was partially offset by growth in APAC and ME, leaving Banking &
Finance at 13% of the Group GP.
We saw strong growth across both our Engineering and Energy sectors in 2018, up 16%* and 30%*
respectively, year on year. Within Engineering we pleasingly saw growth across all major regions with
the UK up 7%*, DACH up 21%*, Benelux, France & Spain up 19%* and the USA up 29%*.
Within Energy, where 94% of GP is derived from Contract, we had very strong performances in both
Continental Europe, up 25%*, and in the USA where our position in renewable energy helped deliver
40%* growth in GP. At the year end, global headcount was up 20% on the prior year, with Continental
Europe up 28% and the USA up 27%.
Focus on Contract, drive Permanent profitability
In 2018 we delivered on our stated strategy by further investing in Contract growth, and improving
Permanent productivity.
At the year end, Contract headcount was up 8% year on year, and all regions excluding UK&I reported
increased headcount and GP growth in Contract. Since 2012 we have doubled our runners, ending on
11,203 and for the sixth consecutive year are able to report an all-time high number of runners at
our financial year end. Our increased weighting towards Contract is creating a business that is more
resilient in times of uncertainty, as well as providing stronger and more sustainable profits. The
introduction of a Contract-specific management team has worked to increase accountability and focus.
Our freelancer model is continuing to perform well, and the focus on growing the Employed Contractor
Model ('ECM') is also paying dividends, as this model continues to grow in popularity across our key
territories. This was a key focus in 2018 and now accounts for 21% of our Contract runners, up from
19% in 2017. [4]
Permanent productivity per head was up 7%, achieved through our focus on the best Permanent markets,
with average salaries up 1% and average fees up 4%. Over the year we focused on reallocating our
headcount into our key growth markets, rather than focussing on net growth in our Permanent
headcount. We know that Permanent recruitment is more sensitive to overall market sentiment and
therefore we have a clear strategy to actively invest in Permanent headcount in our key markets of
Japan, the Netherlands, Germany and the USA, so that we are best-positioned for the future.
Maintaining a strong base of Permanent business in markets where there is space to grow continues to
be important to the business. From a strategic viewpoint, Permanent is key in building client
relationships, provides a Contractor development pipeline, and has strong cash generation
characteristics.
GP* Average Headcount
GP Contract Permanent Total Contract Permanent Total
USA +14% -5% +8% +15% +2% +11%
APAC & ME -2% +24% +11% +13% -3% +3%
Continental +22% +15% +20% +19% +8% +15%
Europe
UK&I 0% -20% -5% -1% -25% -9%
Total +14% +6% +12% +13% -1% +8%
Develop and sustain great customer relationships
Throughout 2018 we evolved our client segmentation strategy, allowing us to more effectively
categorise our client types to ensure we develop our relationships with them in a more tailored
manner. We developed our first onshore delivery centre based in Glasgow, which allows for larger and
more nimble and scalable delivery mechanisms for project recruitment.
We have fully integrated the Net Promoter Score ('NPS') metric into the organisation and it now feeds
into the rewards process across the business.
NPS scores were broadly flat in 2018, reflecting the move of our London support services to Glasgow.
Looking ahead, we are confident that we are well positioned to improve in 2019.
REGIONAL OVERVIEW
Continental Europe (57% of Group GP)
GP Average Sales
Headcount
Growth* YoY FY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
2018 +22% +15% +20% 72% 28% +19% +8% +15%
Performance in 2018
DACH
Germany, Austria and Switzerland ('DACH'), representing 31% of Group GP, had a strong year in 2018,
building on our market-leading position in this region. Changes made to the management set-up
delivered productivity gains as expected, and during the year, we rolled out a new employer
proposition, which helps us to attract and retain talent. It also allowed us to deepen our customer
relationships, and offer tailored solutions to major clients with complex needs. This is a barrier to
entry to our competitors.
This translated into tangible benefits; in Germany our Permanent GP grew 16%* with just 4% additional
headcount. ICT remains our largest sector.
Our Contract business grew by 22%*, with a 16% investment in headcount, and the dilutive effect on
average tenure of our expansion was fully compensated by a more focused customer strategy.
The Employed Contractor Model ('ECM') has been steadily gaining ground and has been regionalised
further across our existing office infrastructure.
We successfully completed an office launch in Austria, which has more than doubled its freelance
business year on year, whilst its Permanent business has increased its headcount by 50% year on year.
Benelux, France & Spain[5]
Benelux, France & Spain is the second largest region after DACH, representing 26% of the Group GP.
Benelux, France & Spain GP was up 18%* year on year.
Overall, we delivered strong growth in the region, supported by strong economic growth, tight labour
markets and high quality execution from our team there.
The Netherlands was the stand-out performer with GP up 25%* year on year, which was an improvement on
the 20% delivered in the prior year. Belgium grew GP by 16%* year on year, while France and
Luxembourg showed more modest growth.
Strong growth was achieved in Contract across the region with GP up 21%* year on year. The
Netherlands Contract business grew 27%* and Belgium Contract up 17%* year on year. We enter 2019 with
a strong Contract runner book up 14% on prior year.
Permanent also showed GP growth of 5%* year on year, with average sales headcount up 5%.
ICT, our largest sector, grew 20%* and continues to be the strongest growth market in the region,
with ICT Contract up 23%* and Permanent up 6% year on year*.
Our relatively new offices in Barcelona, Eindhoven, Lille, Lyon and Toulouse, all of which have
strong STEM opportunities, will enable us to more closely support our clients in these locations.
Expectations for 2019
DACH
We exit the year with a strong Contract runner book, which combined across the DACH region is 25%
bigger than in the prior year, a strong starter pipeline, and our largest ECM order book to date.
In line with our Group strategy, we will continue to invest in all divisions with particular focus on
further strengthening our ECM throughout 2019.
Benelux, France & Spain
We exit the year with a strong Contract pipeline, Permanent starter pipeline and a highly focused
management team with a clear strategy.
In line with our Group strategy, we will continue to invest in Contract throughout 2019, where we see
market opportunity. We will focus on improving Permanent productivity, with selective headcount
investments.
Our investment in the ECM in 2018 helped the region increase the number of Contractors. We expect to
leverage this further in 2019 across the region.
We exit 2018 in good shape across our European business. Regional management objectives are fully
aligned with our corporate vision and we start 2019 with strong pipelines in both Contract and
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