DJ SThree: Replacement Final Results
SThree (STEM)
SThree: Replacement Final Results
27-Jan-2020 / 08:52 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.
A number of non-material typographical changes have been made to the Final Results announcement released
on 27.01.2020 at 07:00, specifically a number of figures in the Consolidated Income Statement.
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 2019
STHREE ANNOUNCES RECORD REVENUE AND OPERATING PROFIT
SThree, the only global pure play specialist staffing business focused on roles in STEM (Science,
Technology, Engineering and Mathematics), is today announcing its final results for the year ended 30
November 2019.
FINANCIAL HIGHLIGHTS
2019 2018 Variance
Adjusted Reported Adjusted Reported Movement Constant
(1) (2) (3)
Currency
Movement
(4)
Revenue (GBP 1,345.0 1,345.0 1,258.2 1,258.2 +7% +6%
million)
Contract 254.6 254.6 232.1 232.1 +10% +8%
net fees
(GBP
million)
Permanent 87.8 87.8 89.0 89.0 -1% -3%
net fees
(GBP
million)
Net Fees 342.4 342.4 321.1 321.1 +7% +5%
(GBP
million)
Operating 60.0 57.7 53.9 47.5 +11% +9%
profit (GBP
million)
Conversion 17.5% 16.9% 16.8% 14.8% +0.7% +0.6%
ratio (%) pts pts
Profit 59.1 56.8 53.4 47.0 +11% +9%
before
taxation
(GBP
million)
Basic 33.2p 31.8p 30.7p 26.6p +8% +7%
earnings
per share
(pence)
Proposed 10.2p 10.2p 9.8p 9.8p +4% +4%
final
dividend
(pence)
Total 15.3p 15.3p 14.5p 14.5p +6% +6%
dividend
(pence)
Net 10.6 10.6 (4.1) (4.1) - -
cash/(debt
) (GBP
million)
(1) 2019 figures exclude the impact of GBP2.3 million in net exceptional strategic restructuring costs and
CEO change costs.
(2) 2018 figures exclude the impact of GBP6.4 million in exceptional strategic restructuring costs.
(3) Variance compares adjusted 2019 against adjusted 2018 to provide a like-for-like view.
(4) Variance compares adjusted 2019 against adjusted 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 cash/(debt) represents cash & cash equivalents less borrowings and bank overdrafts.
HIGHLIGHTS
· Record revenue and profit for the Group
· Revenue of GBP1.35bn up by 6%*
· Adjusted operating profit grew by 9%* to GBP60.0m, a record level for the Group
· Adjusted profit before tax up 11% YoY to GBP59.1m (2018: GBP53.4m)
· Reported profit before tax up 21% YoY to GBP56.8m (2018: GBP47.0m)
· Strategic focus driving net fees growth for the full year of 5%*
· Strong growth in USA, Continental Europe and Asia Pacific & Middle East
· Good growth across Technology, Life Sciences, Energy & Engineering
· 86% of Group net fees generated from international markets (2018: 83%)
· Strong growth in Contract net fees up 8%*, in line with strategy, now representing 74% of Group
net fees (2018: 72%)
· Permanent net fees down 3%*
· Further improvements in operational performance
· 0.6% pts* improvement in conversion ratio to 17.5%, reflecting strong trading performance and cost
savings delivered from the restructuring of support functions
· Bolstered management teams
· Implemented new strategic process and defined new strategic pillars
· Strong cash conversion underpins 6% increase in full year dividend to 15.3p (2018: 14.5p)
· Year-end net cash position of GBP10.6m; underlining the cash flow resilience of our Contract emphasis
and tighter working capital management.
* In constant currency
Mark Dorman, CEO, commented:
"I am pleased to be reporting today on a record year for the Group, during which we delivered an
adjusted operating profit of GBP60.0m. This performance is a result of the hard work delivered throughout
the business over the period. Our focus on STEM and flexible working is delivering good overall growth
despite a challenging trading background.
Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest
in our people, data and technology as we execute against our focused strategy as outlined at our recent
Capital Markets Day. Whilst early in the year, we can see that broader macro-economic and political
uncertainties may well persist, and the trading environment remains similar to Q4. We have the right
strategy, are in the right sectors and geographies, and our Contract focus will allow us to drive
another year of progress towards our ambitions.
We have a unique position at the centre of long-term secular global trends and are focused on the right
markets which will stand us in good stead for the future. In addition, we are building a platform
business with the systems to increase the effectiveness of our execution. The opportunity for us is
significant, and we are very well placed to capitalise on it, driving sustainable value for all of our
stakeholders."
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: 90161391#
This event will also be simultaneously audio webcast, at http://bit.ly/STEM_FY19 [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.
SThree will issue Q1 trading update on Monday 16 March 2020.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Shaun Zulafqar, Senior Company Secretarial Assistant
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Hilary Buchanan
Notes to editors
SThree is the only global pure play specialist staffing business focused on roles in STEM (Science,
Technology, Engineering and Mathematics). 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 STEM 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.
CHairman's statement
I'm proud that SThree delivered in 2019 a record performance in terms of revenue, profitability and
market penetration as we focused more tightly on providing our customers with the best STEM talent, our
candidates with the opportunity to fulfil their ambitions and potential, and our employees with engaging
and rewarding work. This is all the more impressive given a complex and somewhat unpredictable
macro-economic and political backdrop in some of our main markets.
Our purpose remains compelling and unchanged: bringing skilled people together to build the future. It
is this purpose that governs our responsibility to all stakeholders. We have spent considerable effort
and attention during the year to ensure that we are closer to our customers and candidate communities,
and this remains a key future priority of the Group, together with enhancing our offering to employees
and communicating better with our investors. We are pleased about the role that our business plays in
wider society and have re-energised our CSR activities and implemented new initiatives under our ESG
strategy. It is also significant that we have set ourselves a bold new target of reducing our absolute
carbon emissions by 20% by 2024, helping to address one of the world's key challenges.
The achievements in the year are in no small part the result of our exceptional, committed and
entrepreneurial team. As signalled last year, Gary Elden stepped down as CEO in March after nearly 30
years in the business, the last six of them as CEO. Gary was responsible for setting a number of the
business foundations we have in place today and which provide an enviable springboard for future growth.
We wish him all the best in his new endeavours and thank him for his leadership and direction. I would
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DJ SThree: Replacement Final Results -2-
also like to thank Justin Hughes, who stepped down as COO in July, for his significant contribution over
the last 25 years.
We were pleased to welcome Mark Dorman as CEO in March, bringing to SThree a wealth of experience in
scaling international business service operations, delivering compelling strategies and leading great
teams. He has already shown himself to be an ambitious and insightful leader, and I look forward to
continuing to work with him. The Board and I are confident that his relentless focus on value creation
for all our stakeholders will be indispensable as we scale further. During the year we also made a
number of significant appointments to our leadership teams around the world, bolstering our capabilities
as we take the business into its next stages of growth.
In November we held our Capital Markets Day in London to update investors on our vision, strategic
evolution and blueprint for success. Our huge market opportunity is also clear, and we are proud to have
crystallised our strategy and pathway to sustainable future growth.
On behalf of the Board, I would like to express our thanks for the tireless effort our colleagues put in
every day to make SThree a trusted partner to our many customers and candidates. It is their drive and
dedication to our purpose that elevates SThree as a global leader and partner of choice. It has been a
pleasure for the Board and individual Board members to spend time visiting a number of our offices over
the year, seeing the work being delivered across our platform, from our excellent operations and
technology activities in Glasgow to the local market leadership we enjoy in Amsterdam.
Corporate governance remains a priority and focus of the business and we have set ourselves FTSE
250-appropriate targets and aspirations. We are also focused on initiatives to enhance diversity and
inclusion across our organisation and remain committed to ensuring that all of our employees' voices are
heard at every level.
A sense of excitement for the future is palpable across SThree. Our recently refined and newly
articulated strategy provides us with confidence in our long-term success, supported by strong
structural market drivers around STEM and flexible working, a great team and a corporate purpose that
seems ever more relevant to meet many of the world's future challenges and opportunities.
CHIEF EXECUTIVE OFFICER'S STRATEGIC REVIEW
The only global pure play STEM specialist[1]
SThree is at the centre of STEM and this has enabled us to deliver a robust financial performance in
what has been one of the most uncertain macro-economic and political periods since 2008. Over the year
we have built on the strong foundations that were in place when I took over. Our continued focus on
STEM, and our scale and global footprint in the right markets, combined with our ability to provide a
full staffing solution for all our clients' needs means that we have delivered an all-time record profit
performance.
Group net fees were up 5%* in the year. The growth was largely delivered, as expected, through our key
territories of Continental Europe and USA; the former was driven by our market-leading businesses in
Germany and the Netherlands which together saw growth of 8%*, whilst the latter was up 9%*. We also made
improvements in our other target markets, including a stand-out performance from our growing team in
Japan, up 43%*. From a sector point of view, we saw robust growth across the Group, with Technology up
7%*, Life Sciences up 5%*, and Energy & Engineering up 14%*.
This performance is a result of the hard work delivered both strategically and operationally, and we
continue to move closer to delivering on our vision of being the number one science, technology,
engineering and mathematics ('STEM') recruiter in the best STEM markets.
Bringing skilled people together to build the future
It is clear to see our purpose of bringing skilled people together to build the future in action through
the work that has been delivered in the period. The wide range of placements that we have made include,
for example, a Regulatory Affairs Consultant, who ensures life-changing medical devices meet the highest
possible safety standards before going to market, a Commissioning Manager whose planning and execution
of key renewable energy projects is helping to make the world a greener place, as well as a significant
number of solar technicians who are providing homes and businesses across the US with
environmentally-friendly solar energy. We provide a company's most important asset - its people - to the
businesses that are at the centre of some of the biggest challenges going on in the world today. We are
very pleased to be a true partner to those businesses, helping them build the future.
The scale of the growth and change as a result of the need for STEM skills going forward should not be
underestimated. Addressing some of the biggest issues such as climate change and the huge demographic
shifts is just the start. Skilled people are needed to solve these global challenges and drive the
future. This creates a huge opportunity as many of those skills, while still in high demand, are also in
short supply, irrespective of where we are in terms of economic cycle.
We truly understand the dynamics of our markets, both as they are now and where they are headed. Our
knowledge of the STEM markets, the needs of businesses operating within them and the niche, local talent
we have built trusted relationships with is unrivalled. This is supported by our ability to deliver a
full set of resourcing solutions to our clients, whether that be Contract or Permanent, to support with
incoming legislation, and to develop supply though the cultivation of candidate communities.
Alongside this, there are two factors driving the demand for flexible working. There is a generation of
people entering the global labour force that have a very different view of the workplace. Millennials
and Generation Z, particularly those with STEM skills, see their career through the lens of the various
projects that they work on rather than the companies they work for. At the same time, more and more
companies are looking for contingent workers and flexible workforces, whether on large scale capital
projects in Engineering or Life Sciences, or whether they're looking to upgrade their technology and
their innovation sphere project by project. These dynamics continue to drive the need for the right
talent in a supply constrained environment.
Our ability to find great talent and to curate that talent to make sure that it matches the right
opportunity is the reason we are able to benefit from both of these trends. We are expert in engaging
with both the client and the candidate all the way through a project, standardising our processes across
the globe and ensuring the client and candidate come to our teams for their solutions going forward,
making it a truly repeatable process. Our scale allows us to deliver this offering across the globe, in
an increasingly complex regulatory environment for our clients. Our scale, expertise and culture make us
the partner of choice.
A scalable platform business able to drive further growth
A key milestone of the year has been the development and articulation of a refocused strategy for the
business that sets us up well to scale the business effectively and deliver consistently into the
future.
The long-term secular trends towards more flexible working manifests itself differently in the 70
different jurisdictions in which we place talent. In order to meet this opportunity, SThree has built a
set of scalable service offerings, which are recurring in nature and which we deploy globally, allowing
for long-term sustainable growth.
One of the important defining characteristics of SThree is our entrepreneurial spirit. It is truly a
pleasure to be working with a team that generates an abundance of new opportunities and good ideas. Our
future success will be reliant on our ability to channel those ideas and ensure we choose the right
opportunities to focus on. As such, we have implemented a 'managing for value' programme process which
assesses the economic value that would be created by each idea, and allows us to rank them by the
economic rate of return. This allows us to create real structure to help us execute our strategy across
five areas of focus - our current geographies and markets, investment in sales and marketing, the use of
data to enhance our decision making, to help drive our business and innovation, while building on our
operational capabilities.
Alongside the use of data to inform our business decisions we are also able to utilise valuable exhaust
data from the activity across our business. We understand what is going on in the STEM markets through
the work we do, and this knowledge enables us to have the right people in the right place to help our
clients. An example of this is the use of data points, internal and external, in order to select the
optimum industry/skill base to invest in. This allows us to maximise productivity of our consultants and
scale appropriately within an industry/skill base.
We maintain our focus on embracing new technologies and believe that this should be central to
everything we do. This will drive efficiency across our scalable, platform business and support the
delivery to our customers. We will continue to capitalise on trends to remain relevant to our customers
in a new digital era, whether that being new ways of working or incremental improvements on an ongoing
basis.
Building on our operational capabilities will underpin our execution going forward. Our creation of the
Centre of Excellence in Glasgow was a foundational step in building first class global operations to
create operational scale and leverage. From that foundational step we'll continue to invest as we move
forward, enhancing our platform for growth.
Our six previous strategic pillars have been refined and we are now focused on executing across four key
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elements. Our new strategic pillars are the guideposts of how the business will be driven going forward,
and reflect how SThree will build upon its unique position in the market:
? Leveraging our position at the centre of STEM to deliver sustainable value to our candidates and
customers
? Create a world class operational platform through data, technology and infrastructure
? To be a leader in the markets we choose to serve
? Find, develop, retain great people
The right team to deliver on the opportunity
We have a truly great team with a wide breadth and depth of skills across our organisation, whether
found in our experienced, long-tenured team that have been delivering the Group's robust performance
over prior years, or in our experts from outside the industry that have joined to build upon the Group's
foundations. Both have been working tirelessly over the year to ensure the business is in its best
position to capture the opportunity ahead of us.
We were pleased to appoint Matthew Blake as Chief People Officer to develop and lead the Group's people
strategy, and Kate Holden as Chief Strategy and Development Officer to oversee the strategic planning
process and successful delivery of SThree's Group-wide strategic programmes.
Our people truly are our lifeblood and we are focused on creating the right culture and environment for
our people to thrive. A full people strategy is being implemented, focused on driving engagement,
shaping culture, developing talent, organisational design, reward and governance, risk and compliance.
Truly reflecting the customer and candidate pools we serve is also key and we are focused on building
diversity throughout the organisation, from top to bottom. To this end, we are building out our
Diversity and Inclusion ('D&I') strategy which will set out our ambition to become leaders of D&I in the
staffing industry. Aligned with our broader Group strategic themes, our D&I commitments will centre
around initiatives such as building communities, internal and external networking, data monitoring and
data-based decision making, policy development, communication, talent management and leadership
development. Alongside this, we are building our Learning & Development ('L&D') strategy through the
creation of learning academies, and strengthening digitalisation (delivering learning the way our people
want to learn). Supporting this is the identification and development of the new L&D target operating
model, structure and ways of working.
Outlook: at the centre of STEM
"Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest
in our people, data and technology as we execute against our focused strategy as outlined at our recent
Capital Markets Day. Whilst early in the year, we can see that broader macro-economic and political
uncertainties may well persist, and the trading environment remains similar to Q4. We have the right
strategy, are in the right sectors and geographies, and our Contract focus will allow us to drive
another year of progress towards our ambitions.
We have a unique position at the centre of secular global trends and are focused on the right markets
which will stand us in good stead for the future. In addition, we are building a platform business with
the systems that will increase the effectiveness of our execution. The opportunity for us is
significant, and we are very well placed to capitalise on it, driving sustainable value for all of our
stakeholders."
CHIEF SALES OFFICER'S REVIEW
2019 saw growth for the Group with net fees up 5%*. Our Contract division, which represents 74% of the
Group, saw strong growth of 8%* offset by a decline in Permanent down 3%* as anticipated.[2]
Global pure play STEM specialist
SThree is the only global, pure play STEM specialist recruiter which makes our business unique. This
enables us to service our customers, both candidates and clients, and achieve our purpose of bringing
skilled people together to build the future.
Our unique scalable business can holistically be viewed in five key distinct sections.
1. Customer
Our customers are split between SME to mid-size organisations and large enterprise organisations.
Although it can vary regionally, our core business sits within SME to mid-size which accounts for circa
82% of our business.
2. Skills
We place 100% STEM skills, exclusively, no matter what sector. As a result, we are better insulated
against the worst vagaries of the broader cycle. Our market intelligence tool uses 32 internal and
external data points and enables us to identify what skills and markets to invest in.
3. Resource options
We provide our customers with a full solution split into three distinct options, Freelance contractor,
Employed contractor, and Permanent. Our blueprint programme provides a standard service globally with
options to fit regional needs.
4. Product type
Alongside our complete standard offerings, we also provide enhanced contract services to our customers.
This provides additional value above and beyond our standard service and supplements the clients'
existing workforce and demanding project requirements.
5. Service and delivery
In order to deliver to our customers in the most effective way we use a local model and a near shore
model. Local delivery model uses technical market and sector specialists to build strong customer
relationships with primarily SME and mid-market organisations. Near shore delivery model utilises our
key account managers to provide scaled delivery to enterprise organisations. We automate the process
using technology and utilising AI to service the client efficiently.
Performance in 2019[3]
The strategy to focus growth investment towards Contract in order to align SThree with the key drivers
in its key markets continues to bear fruit with the mix of Contract net fees increasing to 74% of total
Group net fees, up from 72% in 2018. Total net fees grew by 5%* with strong performance in Contract
partially offset by a decline in Permanent.
Net fees per division 2019 2018 YoY Variance*
Contract GBP254.6m GBP232.1m +8%
Permanent GBP87.8m GBP89.0m -3%
Group GBP342.4m GBP321.1m +5%
Contract/Permanent Split 2019 2018
Contract 74% 72%
Permanent 26% 28%
Regional
SThree has well established and, in many cases, leading positions in the best STEM staffing markets
across the globe. We are a well-diversified business with 86% of our net fees now generated outside of
the UK & Ireland ('UK&I'). We are pleased to report that 2019 was another year where the majority of our
regional businesses reported growth ahead of their domestic averages.
Performance in Continental Europe was pleasing with growth of 8%* in net fees. This is despite having
strong prior year comparatives with net fees growing 20%* in 2018. Within Continental Europe, DACH grew
10%* and Benelux, France & Spain grew 4%*. Our key aims in this region are to be the number one in the
STEM space in both Germany and the Netherlands.
The Netherlands, which is a key business hub for many multinational companies, grew 8%* against strong
prior year comparatives of 25%*. Germany continues to deliver strong growth with net fees up 9%*. The
expansion of our Contract service, to include Employed Contractor Model in 2017, provided our German
business with further opportunities for growth. We also opened two new offices in Germany located in
Hanover and Nuremburg, which enables us build towards our aim to be the number one in the STEM space.
Our business in USA saw robust growth of 9%* in net fees. This is on the back of strong prior year
growth of 8%*. We believe the infrastructure that we have in place, alongside our experienced management
team leaves us in a strong position to grow our net fees going into the new year and target an increased
market share.
The UK&I was challenging in 2019 as the uncertainty surrounding Brexit and wider political environment
continues to impact the region. Net fees for the year declined 9%* year on year. The UK is a mature
recruitment market and is seeing slower industry growth than other geographies, however, it remains a
strategic priority for the Group. Following the restructuring of Permanent division in 2018, we
appointed a new Managing Director in Q4 2019 to positively impact performance.
Our Asia Pacific & Middle East ('APAC & ME') business delivered growth of 12%* in the year. This was
driven largely by our excellent Japan business which grew 43%*. Japan is a very important market for the
Group where we have a small but fast-growing business providing the Group with substantial opportunity
for further growth.
Net fees per region 2019 2018 YoY Variance*
Continental Europe GBP196.7m GBP183.3m +8%
USA GBP76.7m GBP66.7m +9%
UK&I GBP48.2m GBP53.1m -9%
Asia Pacific & Middle East GBP20.8m GBP18.0m +12%
Group GBP342.4m GBP321.1m +5%
Sectors
Our largest sector, Technology, represents 45% of the Group's total net fees and net fees grew by 7%* in
the year. All our regions other than UK&I experienced growth in this sector.
Life Sciences grew net fees by 5%* in the year. USA, our largest region for this sector, grew net fees
by 11%*. UK&I delivered robust growth of 4%*, offset by 2%* decline in Continental Europe.
Banking & Finance was a challenging sector for the Group with net fees declining by 13%*. We saw a
decline in UK&I of 22%* driven by the uncertainty surrounding Brexit. Continental Europe and USA both
declined in the year down 10%* and 21%*, respectively.
We saw strong growth in our Energy & Engineering sector, with net fees up 14%*. This was driven by USA
which grew 38%* and Continental Europe which grew 10%*.
Net fees per sector 2019 2018 YoY Variance*
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