DJ SThree: Interim Results
SThree (STHR)
SThree: Interim Results
22-Jul-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")
INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2019
Encouraging first half performance
FINANCIAL HIGHLIGHTS
HY 2019 HY 2018 Variance
Adjusted Reported Adjusted Reported Movement Constant
(1) (2) (3)
Currency
Movement
(4)
GBPm GBPm GBPm GBPm % %
Revenue 653.3 653.3 585.9 585.9 +12% +10%
Contract 121.1 121.1 106.7 106.7 +13% +12%
net fees
(5)
Permanent 41.9 41.9 41.7 41.7 - -1%
net fees
Net fees 163.0 163.0 148.4 148.4 +10% +9%
Operating 24.6 23.3 20.4 18.0 +21% +18%
profit
OP 15.1% 14.3% 13.7% 12.1% +1.4%pts +1.2%pts
Conversion
ratio (%)
Profit 24.0 22.7 20.3 17.8 +18% +16%
before
taxation
Basic 13.5p 12.7p 11.6p 10.1p +16% +14%
earnings
per share
Interim 5.1p 5.1p 4.7p 4.7p +0.4p -
dividend
per share
Net debt (8.0) (8.0) (6.2) (6.2) - -
(6)
(1) HY 2019 figures exclude the impact of GBP1.3 million in net exceptional strategic restructuring
costs and Senior Management change costs
(2) HY 2018 figures exclude the impact of GBP2.4 million in exceptional strategic restructuring
costs
(3) Variance compares adjusted HY 2019 against adjusted HY 2018 to provide a like-for-like view
(4) Variance compares adjusted HY 2019 against adjusted HY 2018 on a constant currency basis,
whereby the prior financial year foreign exchange rates are applied to current financial year
results to remove the impact of exchange rate fluctuations
(5) Net fees were previously referred to as gross profit
(6) Net debt represents cash & cash equivalents less borrowings and bank overdrafts
OPERATIONAL HIGHLIGHTS
· Double digit growth in net fees across three of the Group's four regions, driving
profitability
· Adjusted profit before tax up 18% YoY to GBP24.0 million (HY 2018: GBP20.3 million)
· Reported profit before tax up 27% YoY to GBP22.7 million (HY 2018: GBP17.8 million)
· 86% of net fees generated from our international business (HY 2018: 82%)
· Strategic focus on Contract continuing to drive growth
· Contract represented 74% of Group net fees (HY 2018: 72%)
· Contract ahead by 12%* YoY, with strong growth across Energy, Engineering and Technology
· Permanent net fees down 1%* YoY, with good growth in DACH (Germany, Austria & Switzerland)
and Japan offset by declines in UK&I and USA
· Investment in the Group delivering returns
· Group period-end sales headcount up 12% YoY. Average sales headcount up 7% YoY
· The expected benefits are being realised from the successful restructure and relocation of
the majority of our London-based support functions to Glasgow
· Interim dividend of 5.1p up 0.4p (HY 2018: 4.7p)
* Variances are held in constant currency
Mark Dorman, CEO, commented: "This set of results, the first since I joined the Group,
demonstrates that our strategy is putting SThree ahead of the field. The engine room of our growth
has continued to be the key strategic focus areas of our business - progress within the key STEM
markets, particularly the USA and Continental Europe, as well as an increased Contract weighting.
"Alongside our teams having capitalised on these major structural trends, it has been pleasing to
note a number of other highlights for the Group. Our small but rapidly growing Permanent business
in Japan, the strong performance for Energy in the US driven by trends to renewable energy and
power transmission, and the strengthening of our market leading position in Life Sciences, where
we continue to benefit from the emergence of new sector technology and data analytics.
"To build on this growth, we are continuing to strategically invest in the areas of the business
which present the greatest opportunity, consistent with our vision to be the number one STEM
talent provider in the best STEM markets. With the scale of the opportunity available to us, we
look forward to continuing to execute in the period ahead.
"Notwithstanding the macro-economic backdrop in certain regions, the Group remains well positioned
as we enter the second half, and the Board's expectations for the full year remain unchanged."
SThree will host a 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: 35582282#
This event will also be simultaneously audio webcast, at https://plcwebcast.uk/sthreeh1july19 [1].
Please note that this is a listen only facility. An archive of the presentation will be available
via the same link following the event.
A video overview of the results from the CEO, Mark Dorman, and CFO, Alex Smith, is available to
watch here: http://bit.ly/STHRh1interview [2].
SThree will issue its Q3 trading update on 13 September 2019.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Company Secretariat
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Hilary Buchanan
Notes to editors
SThree is a leading international STEM (Science, Technology, Engineering and Mathematics)
recruitment company. It brings skilled people together to build the future through the provision
of specialist Contract and Permanent services to a diverse client base of over 9,000 clients. From
its well-established position as a major player in the 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 3,100 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 USA 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.
INTERIM MANAGEMENT REPORT
Chief Executive Officer's Review
Introduction
At this, my first set of interim results as CEO of SThree, I am pleased to say that my time with
the business so far has reinforced my confidence in the three core strengths of SThree that
initially attracted me to the Group; our purpose, the strong structural growth drivers in our
markets, and the high quality of our people.
The clear benefits of our model and the structural growth drivers in our markets have shaped the
encouraging results we are reporting today. It is a great demonstration that the Group's focus on
STEM and Contract is delivering effectively. Particular highlights include Group net fees up 9%*
year on year, double-digit growth across three of our four regions, and Contract, our strategic
focus, delivering 12%* growth in the first half and now representing 74% of Group net fees.
Our purpose
Our purpose is central to everything we do as a business and is why we exist, "to bring skilled
people together to build the future". Our work is aimed at changing people's lives for the better
and this is something that motivates my colleagues and I on a daily basis. As market trends shift
and STEM skills become ever more prevalent, we are helping build communities of talent and
future-proof people's careers while providing our customers with their most valuable asset.
Market drivers
I have spent my time since March immersing myself in the business and it is apparent that we are a
truly unique recruitment business, working in high growth markets with long-term structural
drivers of growth. The scale of opportunity in STEM globally is enormous, with the fourth
industrial revolution fuelling an ever-increasing demand for STEM workers across all verticals. In
the USA, according to the US Bureau of Labor Statistics, all STEM occupations are projected to
grow by 10.8% between 2016 and 2026 (compared to projected growth of 7.2% for non-STEM
occupations). A recent survey of 25,000 businesses in Germany by The Association of German
Chambers of Commerce and Industry cited the shortage of skilled workers as their greatest risk,
while a study by Bertelsmann predicts that the demand for STEM experts in Germany will grow by 1.4
million by 2035.
Alongside this, the way we work is structurally shifting, with the 'gig' economy, flexible ways of
working, and the changing role of contractors becoming increasingly important. This is closely
tied into highly skilled roles, which underpin the STEM markets.
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Within our verticals, the thematic trends we all read about - renewable energies, genetic editing,
Artificial Intelligence ("AI"), cyber security, the Internet of Things ("IoT") - are examples of
the key societal movements driving growth across our diversified portfolio of sectors. For their
implementation, these trends all require people that are hard to find, have specialist skills, or
are brand new roles that were not in existence previously. In times like this, there is even more
value in our niche market approach and knowledge base.
2019 has seen us continue to focus on the value we provide to our customers in terms of providing
specialist support, a key competitive advantage and a significant barrier to entry for the Group.
As an example, in the UK we have actively shared our knowledge on IR35 reform as our stakeholders
within the private sector gear up for the tax changes in April. Doing nothing is not an option for
organisations that rely upon flexible workers and as the leading provider of specialist STEM
talent, we have provided support and material to help our contractors and clients understand how
to remain both compliant and commercially attractive. Further to this, we have actively fed into
the ongoing UK Government Consultation.
Our People
We believe people are the most important asset to any business. SThree is no different and
investing in our teams is critical in delivering our growth plans. We increased average Group
sales headcount in the period, predominantly in Contract, in line with our strategic focus. Our
people are high performing and driven, and I would like to take this opportunity to thank them for
their hard work and passion throughout the period.
For the second year in a row, the German SThree team was awarded the 'Top Employer' certification
in the overall midsized employers' category by the Top Employers Institute. This marks SThree
being named amongst Germany's top midsized employers for the sixth consecutive year in a row,
which shows how well our own people rate our unique offering when it comes to excellent working
conditions and talent strategy.
Testament to the strength of delivery across the business is our excellent Net Promoter Score
("NPS"), from both clients and candidates, which since the year-end has increased from 42 to 46,
and shows our customers' willingness to recommend our services to others. It is clear that both
clients and candidates value our teams' ability to understand the specialty of the roles we work
to fill and also the specialist expertise our teams have - how to deliver the right result within
a given process.
Investing for the future
Building for the future is important to us, and we are investing in the areas that will drive
growth.
A key strategic focus is our investment in technology to help drive both growth and efficiencies;
we believe our ability to harness actionable data insights and use of technology will continue to
be a competitive differentiator going forward. Part of our strategy involves our ongoing
investment in data to allow us to further analyse not just current but emerging trends, giving us
unique insights into our markets and helping us to identify the best current and future business
opportunities. In addition, we are investing in solutions and technologies, which make our offer
both more compelling and more efficient - for SThree, for our customers and for candidates. We
will continue to review which investments are likely to deliver the right returns within our
buy/build/rent structure.
We will also continue to invest in our people and infrastructure, realising benefits for the
Group. An example of this is our relocation to Glasgow and the creation of a Centre of Excellence,
which is already delivering the benefits that we were expecting; we will continue to invest in
this Centre to improve efficiency throughout the business.
Regional performance
Our diversity across geographies and STEM sectors provides growth and resilience for the Group;
the Group now derives 86% of its revenue from our international business. Our largest region,
Continental Europe, continued to grow well, alongside USA. Both of these regions have benefitted
not only from capitalising on the wealth of opportunity available in their markets brought about
by growing demand, but also from the strong delivery from our teams and strategic initiatives that
have been put in place.
We have identified and focused on those areas of the business that need refinement. For example,
in the UK, we are spending time driving and resourcing the specific areas of skills and industry
sectors where we have the opportunity to get the best returns. We are in the process of
capitalising on the insight we have into the market dynamics and focusing on allocating resources
accordingly. Whilst these areas are a work in progress, we are confident in the ability of our
teams to deliver growth. Ultimately, our focus is on execution across the business, based on
informed and data-driven detail. We have plans in place to drive growth across all areas of the
Group.
Outlook
Overall, we are pleased with trading in the first half of the year, driven by our strategy to
focus on STEM and Contract, our global market exposure and the entrepreneurial spirit of our
dedicated colleagues. We will be building on this strategy, driving execution through detailed
operational plans, in the period ahead. Notwithstanding the macro-economic backdrop of certain
regions, the Group remains well positioned for the second half, and the Board's expectations for
the full year remain unchanged.
HY 2019 Group trading performance
Overview
We are encouraged by our first half performance with net fees up 9%*, and strong growth achieved
in Q2, also up 9%* YoY. The growing breadth and scale of our international operations, which now
account for 86% of net fees, underline how far the Group has grown from its UK roots. Whilst
broader market conditions are weakening in some parts of Continental Europe, the STEM markets
remain buoyant and we are confident we can maximise our opportunities with selective headcount
growth. The USA, our second largest market, continues to be robust. We are actively managing our
business in the UK, where broader macro pressures remain significant.
Our strategic focus on Contract continues to deliver good growth across our key sectors and
regions, as well as providing greater resilience in more uncertain economic conditions. Contract
net fees were up 12%* in H1 YoY and up 13%* in Q2, with Continental Europe, USA and Asia Pacific &
Middle East ('APAC & ME') delivering double digit growth. Our focus in H2 is to prioritise
investment in Contract in our fastest growing markets.
Permanent net fees were down 1%* in H1 YoY and down 2%* in Q2, driven by declines in UK&I and USA,
both reflecting previous strategic decisions which we anticipate will drive positive change going
forwards. We saw strong growth in DACH and our small, fast-growing business in Japan.
Adjusted Operating Profit was up 18%* YoY and we are well positioned for the second half as our
investment in headcount continues to mature and we benefit from a strong Contractor book.
The expected benefits are being realised from the successful restructure and relocation of the
majority of our London-based support functions to Glasgow.
Our investment in headcount, the quality of our management and increasing expertise in our niche
markets alongside the strategic relocation and restructure of our support functions are all
driving us forward on our journey to become the number one STEM talent provider in the best STEM
markets. We are making good progress against the five-year growth strategy outlined at the Capital
Markets Day in November 2017.
Group
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +12% +1% +9% +8% -4% +4%
19
Q2 +13% -2% +9% +13% +5% +10%
19
HY +12% -1% +9% 74% 26% +11% - +7%
19
* Variances are held in constant currency
Breakdown of net fees HY 2019 HY 2018 FY 2018
Geographical Split
Continental Europe 58% 56% 57%
USA 22% 20% 21%
UK&I 14% 18% 17%
Asia Pac & Middle East 6% 6% 5%
100% 100% 100%
Sector Split
Technology 45% 45% 44%
Life Sciences 19% 20% 20%
Banking & Finance 12% 13% 13%
Energy 11% 9% 10%
Engineering 10% 10% 10%
Other Sectors 3% 3% 3%
100% 100% 100%
Operating Review
Business Mix
Contract is well suited to our STEM market focus and geographical mix and it remained the key area
of focus and growth throughout the period.
Our Contract business has continued to go from strength to strength with increasing net fees and
average headcount up 11% YoY. Q2 was the 22nd consecutive quarter of net fees growth achieved by
Contract since it was given greater strategic focus. The period ended with contractor numbers of
10,749, up 4% YoY.
Permanent net fees were marginally lower with UK&I and USA net fees declining, reflecting the
previously reported UK restructuring and the leadership and strategic changes that we made in the
USA last year. Average sales headcount in our Permanent business remained flat. We have seen
strong growth in our largest Permanent region, DACH, up 9%*. Japan, our small but fast growing
business continues to perform strongly as we look to invest in this business further.
Average Permanent fees were up 1%* YoY as we focus on specialist recruitment. We expect to
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strategically invest in Permanent in the remainder of 2019, predominantly in USA, DACH and Japan.
Regional Growth
We have seen strong growth in Contract across most regions. 86% of the Group net fees are now
generated from outside the UK&I with our largest regions growing well.
Continental Europe (58% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +14% +6% +12% +12% - +8%
19
Q2 +17% +5% +14% +13% +4% +10%
19
HY +16% +5% +13% 74% 26% +13% +2% +9%
19
* Variances are held in constant currency
Continental Europe is our largest region comprising businesses in Germany, Switzerland, Austria,
Netherlands, Belgium, France, Luxembourg and Spain.
The region delivered strong growth in the period with increasing net fees across all main country
markets. DACH, our largest territory in the region was up 15%* YoY and we continued to invest with
average headcount up 8%. Netherlands also performed strongly, with net fees ahead by 11%* YoY and
average sales headcount up 15%. Contract growth in Technology, our largest sector, was very
strong, up 19%*. This was supported by Engineering, which grew 40%*.
The region delivered double digit growth in contractors, up 12% YoY, creating growth opportunities
for H2, with Net Fees per Day Rate ('NFDR') up by 1%*. Net fees in this region performed
particularly well against very strong prior year comparatives.
Growth was also delivered in Permanent, driven by DACH up 9%*. This was in part down to an
increase in average fees for Technology, Banking and Finance alongside Energy.
USA (22% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +24% -1% +17% +7% -3% +4%
19
Q2 +21% -15% +10% +11% +14% +12%
19
HY +22% -10% +13% 78% 22% +9% +5% +8%
19
* Variances are held in constant currency
The USA is the world's largest specialist STEM staffing market and is our second largest region.
We continue to see further opportunities for growth in all our markets as STEM roles in the region
continue to be highly sought after and are projected to grow by 10.8% between 2016 and 2026.
Growth of 13%* YOY in the region was across our major sectors Technology, Life Sciences and
Energy. Life Sciences, our largest sector in the region, grew 10%* YoY. Energy continued to
improve in the region up 68%* with Technology up 10%*.
Contract net fees in USA were very strong up 22%* YoY with double-digit growth across all sectors
except Banking & Finance which declined in line with global trends. Energy performance was very
pleasing, with net fees up 73%* YoY as we continue to develop our customer portfolio, build on our
strong position in renewable energy, power transmission and upstream alongside broadening our
service offering. We have invested in our Contract business with average sales headcount growing
9% YoY. Net Fees per Day Rate ('NFDR') increased by 28%* YoY, as we focused on higher margin and
higher salary roles.
Permanent net fees declined 10%* YoY, largely due to the following previously announced leadership
and strategic changes made to the division. These changes were implemented to create a platform
for more consistent and balanced growth and we are confident we have made the right strategic
decisions for the region. We expect the positive impact of these changes to be seen in performance
during H2 2019 and beyond. Despite this it is encouraging to note that average fees in the region
were up 6%* YoY with all sectors experiencing growth. Year to date average headcount also
increased by 5% YoY.
UK&I (14% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 -5% -16% -7% - -29% -8%
19
Q2 -7% -32% -12% +12% -12% +5%
19
HY -6% -25% -9% 84% 16% +6% -22% -2%
19
* Variances are held in constant currency
The UK&I is one of our smaller regions, however it remains an important part of our business.
Following the previously reported restructuring, net fees in the region were down 9%* YoY, with a
2% YoY reduction in average headcount. We have put significant work into stabilising the region,
the benefits of which are beginning to show.
In line with the broader Group strategy, the region is increasingly Contract focused as we have
cautiously invested in specific opportunities within the STEM market. Following a recently
increased focus, we saw growth in Life Sciences, however this was offset by decline in all other
sectors. Overall our Contract business saw a decline in performance with net fees down 6%* YoY.
Demonstrating our continued commitment to UK&I over the first half we made the decision to
strategically invest in our Contract business with average sales headcount up 6% YoY. We
anticipate this headcount will become productive in the second half of the year. Contractors for
the region were down 4% YoY, however we saw our NFDR up 1%*, reflecting the increasingly targeted
approach of the UK&I business.
Reflecting continued macro-economic and political uncertainty, Permanent net fees declined 25%*
YoY. As part of the region's recent restructuring, we significantly reduced our headcount in our
Permanent division towards the end of H1 2018 and as a result our average sales headcount was down
22% YoY. Our move to a specialist hub and onshore delivery model is now in place and we will
continue to cautiously build our presence in key sectors to maximise opportunity.
APAC & ME (6% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +16% -3% +5% +11% +21% +17%
19
Q2 +14% +26% +20% +20% +20% +20%
19
HY +15% +11% +13% 43% 57% +15% +21% +18%
19
* Variances are held in constant currency
Our APAC & ME business principally includes Japan, Australia, Singapore and Dubai. APAC & ME
represented 6% of Group net fees, a slight increase from 5% at the end of 2018.
Contract performance was strong in the period, led by our Dubai business, up 42%*, with growth in
Banking & Finance and Energy sectors. Contractors grew 4% YoY in the region, with NFDR down 2%*
YoY.
Growth in Permanent net fees in the region was primarily driven by Japan, which was up 49%* YoY,
with strong growth in Life Sciences and Technology. We invested in Permanent headcount in Japan
where average sales headcount was up 65%.
Average headcount was up 18% YoY with Contract up 15% YoY and Permanent up 21% YoY.
We will focus on our investment in the Japan Permanent and Dubai Contract businesses in the second
half with the rest of the region managed to maximise profitability.
Sector Highlights
The Group saw good growth across four of our five sectors in the period. Technology, our largest
sector, Engineering and Energy experienced strong growth in the period. Our second largest sector,
Life Sciences, also saw robust growth.
Technology (45% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +9% +11% +10% +9% +3% +8%
19
Q2 +13% +7% +12% +15% +11% +14%
19
HY +11% +9% +11% 75% 25% +12% +7% +11%
19
* Variances are held in constant currency
Technology is our largest and most established sector representing, 45% of the Group net fees and
48% of the Group average sales headcount, with the majority of its business in the more mature
UK&I and European markets. Net fees for the period were up with growth across both Contract and
Permanent divisions. The sector has delivered 21 consecutive quarters of growth. The rate of
growth was impacted by the relatively soft performance of Technology in the UK&I, however all
other regions were in double digit growth. Contractors for the sector have increased by 10% YoY,
with particularly strong growth noted across Continental Europe. Average headcount in Technology
was up 11% YoY, with Contract growing 12% YoY and Permanent up 7% YoY. The mix in headcount is
weighted towards Contract which accounts for 71% of total Technology headcount.
Life Sciences (19% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +6% -3% +3% -1% -11% -5%
19
Q2 +11% +3% +8% +3% +2% +3%
19
HY +8% - +6% 69% 31% +1% -5% -1%
19
* Variances are held in constant currency
Our Life Sciences sector is a market leader across several of our regions and Life Sciences
represented 19% of Group net fees in the period. Total net fees grew by 6%* YoY with Contract
growing 8%* YoY and Permanent remaining flat*. Contract performance was pleasing and was up across
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all regions. Contractors increased 7% YoY with NFDR up 1%* YoY. Average sales headcount was down
1% YoY, with Contract up 1% and Permanent declining 5%. The emergence of new technology and data
analytics in this sector is enhancing the ability of our highly skilled people to find the best
candidates to support the business and capitalise on the market opportunity.
Banking & Finance (12% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Growth YoY
Mix
Cont Perm Total Con Perm Cont Perm Total
t
Q1 -6% +1% -3% +7% -1% +3%
19
Q2 -12% -16% -13% +1% - -
19
HY -9% -8% -9% 58% 42% +4% - +2%
19
* Variances are held in constant currency
Banking & Finance net fees were down 9%* YoY with Contract down 9%* and Permanent down 8%*. In
line with broader trends, Banking & Finance was our only sector in decline and we saw mixed
results across our regions. We saw good growth coming out of our DACH business, which was up 24%*.
There was growth in our new Japan business, up 30%* along with Dubai, up 29%*. The UK&I business
performance continues to be impacted by broader political uncertainty. Average headcount for the
sector was up 2% YoY.
Energy (11% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +26% -4% +25% +1% +28% +2%
19
Q2 +30% +20% +29% +10% +67% +13%
19
HY +28% +10% +27% 95% 5% +6% +47% +8%
19
* Variances are held in constant currency
Energy represented 11% of our overall Group net fees and the sector has shown good growth. Net
fees in the sector were up 27%* YoY. Contract which represents 95% of our Energy net fees grew
28%* YoY. We continue to support our Contract business with headcount up 6% YoY. Contractors in
the sector declined 9% YoY, however NFDR showed strong growth, up 18%* YoY driven by the USA which
successfully repositioned to placing more niche roles within power transmission and renewables.
Continental Europe and USA account for 85% of our total net fees in the sector - USA saw growth of
68%* YoY with Continental Europe remaining flat*. Our Dubai business grew by 9%* YoY. Average
sales headcount was up 8% YoY and we will continue to review the Energy business and selectively
invest where we can maximise market opportunities.
Engineering (10% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +39% -17% +19% +28% +1% +19%
19
Q2 +18% -17% +9% +40% +6% +28%
19
HY +27% -17% +14% 78% 22% +34% +3% +23%
19
* Variances are held in constant currency
Engineering represented 10% of Group net fees and grew strongly, with net fees up by 14%* YoY. The
sector is heavily weighted towards Contract, which accounted for 78% of net fees. Growth in
Contract net fees was very pleasing up 27%* YoY. Continental Europe is our largest region in the
Engineering sector and we saw good overall growth of 25%* YoY. Contractors are up 16% YoY with
NFDR up 6%*. Average sales headcount was up 23% YoY with Contract up 34% YoY and Permanent up 3%
YoY.
CHIEF FINANCIAL OFFICER'S REVIEW
Operating profit
Revenue for the year was up 10% on a constant currency basis to GBP653.3 million (HY 2018: reported
GBP585.9 million) and up 12% on a reported basis. On a constant currency basis, net fees increased
by 9%, and on a reported basis by 10% to GBP163.0 million (HY 2018 GBP148.4 million). Growth in
revenue exceeded the growth in net fees as the business continued to shift towards Contract.
Contract represented 74% of the Group net fees in the period (HY 2018: 72%). This change in mix
resulted in a modest decrease in the overall net fees margin to 24.9% (HY 2018: 25.3%), as
Permanent revenue has no cost of sale, whereas the cost of paying the contractor is deducted to
derive Contract net fees. The Contract margin increased slightly to 19.8% (HY 2018: 19.6%).
The reported profit before tax was GBP22.7 million, up 27%. The adjusted profit before tax ('PBT')
was GBP24.0 million up 18% YoY (HY 2018: reported GBP17.8 million and adjusted GBP20.3 million). The
'adjusted' PBT excludes restructuring costs of GBP1.3 million that were incurred in the current
period in respect of the Senior Management changes and relocation of support functions to Glasgow
(HY 2018: GBP2.4 million). The benefits of operational efficiencies delivered by the restructuring
of our support functions contributed to the increase in the operating profit conversion ratio of
1.4 percentage points to 15.1% on an adjusted basis and 2.2 percentage points to 14.3% on a
reported basis (HY 2018: adjusted 13.7% and reported 12.1%).
Restructuring costs ('Adjusting items')
The expected benefits are being realised from the successful restructure and relocation of the
majority of our London-based support functions to Glasgow. This restructuring is anticipated to
realise cost savings in excess of GBP5 million per annum.
Only immaterial net exceptional costs of GBP0.1 million have been recognised during the period in
relation to the transition to the Centre of Excellence. The exceptional charge in the period
included mainly personnel double-running costs of GBP0.2 million and property costs of GBP0.3 million.
These costs were subsequently offset by the government grant income of GBP0.4 million recognised as
an offset to the exceptional costs of an agreed percentage of gross wages for each full time role
created in the Centre of Excellence, bringing the total net costs recognised to date to GBP13.2
million (HY 2018: GBP9.2 million).
We do not expect to incur any further exceptional costs in the remainder of the year in respect of
the move to Glasgow whilst the additional government grant is anticipated to be received and
recognised as exceptional income in the period through to the end of 2021.
On 14 December 2018, the Group communicated to the market that the Chief Executive Officer, Gary
Elden, would step down from his role and the Board on 18 March 2019. The new Chief Executive
Officer ('CEO'), Mark Dorman, joined the Group on 18 March 2019. The new CEO was appointed
following Gary Elden stepping down from the role after leading the Company for six years. Mark was
appointed after a rigorous process determined he was the best candidate to take the business
forward to its next stage of growth and development. These Senior Management changes resulted in
the exceptional charge of GBP1.2 million in HY 2019. The total charge comprised contractual
payments, recruitment and other professional fees, double running costs and relocation costs.
The non-recurring nature of these strategic projects continues to be of sufficient magnitude to
warrant separate disclosure as an exceptional item on the face of the Consolidated Income
Statement, in line with our accounting policies. Disclosure of items as exceptional highlights
them and provides a clearer, comparable view of underlying earnings.
A reconciliation of profit before tax on an adjusted basis to reported basis
HY 2019 HY 2018 Variance
GBPm GBPm GBPm
Reported profit before tax after 22.7 17.9 4.8
exceptional items
Net exceptional costs - charged to 1.3 2.4 (1.1)
operating profit
(i) Senior Management changes 1.2 - 1.2
(ii) Support functions relocation 0.1 2.4 (2.3)
Reported profit before tax and 24.0 20.3 3.7
exceptional items ('Adjusted')
Accounting changes
On 1 December 2018 IFRS 9 Financial Instruments ('IFRS 9') and IFRS 15 Revenue from Contracts with
Customers ('IFRS 15') became effective for the Group. We changed our accounting policies and made
retrospective adjustments accordingly.
IFRS 9 introduced new requirements for classification, recognition and impairment of financial
assets.
Overall, IFRS 9 had an immaterial impact on the Group. On the date of initial application of the
standard, no adjustments were made to the opening balance of retained earnings or other reserves.
In line with the transitional provisions in IFRS 9, comparative figures have not been restated.
From 1 December 2018, the Group presents changes in the fair value of all its equity investments
in other comprehensive income, as these instruments are held for long-term strategic purposes.
Certain investments in convertible bonds with the embedded conversion rights were reclassified
from 'available-for-sale' to 'financial assets held at fair value through profit or loss'. There
were no changes to the Group's existing impairment methodology for trade receivables.
IFRS 15, a new revenue recognition standard effective for the Group from 1 December 2018, was
adopted on the modified retrospective basis without restatement of comparatives. IFRS 15 permits
the recognition of contingent consideration provided that it is highly probable that a significant
reversal in the amount of cumulative revenue recognised will not occur when the uncertainty
associated with the contingent consideration is subsequently resolved. Historically, the Group's
policy of estimating Contract accrued income resulted in certain amount of revenue being reversed.
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