DJ SThree: Half Year Results
SThree (STEM)
SThree: Half Year Results
20-Jul-2020 / 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 HALF YEAR ENDED 31 MAY 2020
resilient performance driven by our unique focus on stem and FLEXIBLE working
SThree plc, the only global pure-play specialist staffing business focused on roles in Science,
Technology, Engineering and Mathematics ('STEM'), is today announcing its financial results for
the six months ended 31 May 2020.
FINANCIAL HIGHLIGHTS
HY 2020 HY 2019 Variance
Adjusted Reported Adjusted Reported Movement Constant
(1) (2) (3)
Currency
Movement
(4)
Revenue (GBP 602.6 602.6 653.3 653.3 -8% -7%
million)
Contract 114.5 114.5 121.1 121.1 -5% -5%
net fees
(GBP
million)
Permanent 36.7 36.7 41.9 41.9 -13% -12%
net fees
(GBP
million)
Net fees 151.2 151.2 163.0 163.0 -7% -7%
(GBP
million)
Operating 13.3 13.7 24.6 23.3 -46% -49%
profit (GBP
million)
Conversion 8.8% 9.1% 15.1% 14.3% -6.3% -6.3%
ratio (%) pts pts
Profit 12.6 13.0 24.0 22.7 -48% -51%
before
taxation
(GBP
million)
Basic 5.7 5.9 13.5 12.7 -58% -60%
earnings
per share
(pence)
Interim nil nil 5.1 5.1
dividend
per share
(pence)
Net 31.0 31.0 (8.0) (8.0) - -
cash/(debt
) (GBP
million)
(5)
(1) HY 2020 figures include the impact of GBP0.4 million in net exceptional strategic restructuring
income.
(2) HY 2019 figures exclude the impact of GBP1.3 million in net exceptional strategic restructuring
costs and CEO change costs.
(3) Variance compares adjusted HY 2020 against adjusted HY 2019 to provide a like-for-like view.
(4) Variance compares adjusted HY 2020 against adjusted HY 2019 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 and cash equivalents less borrowings and bank overdrafts and
excluding leases.
HALF-YEAR HIGHLIGHTS
· Resilient net fees performance, underpinned by our strategy
· Group net fees for H1 down 7%* YoY, with Q2 down 12%*, impacted by COVID-19
· Contract H1 net fees down 5%* (Q2 down 11%*), representing 76% of Group net fees (HY 2019:
74%)
· Geographically diversified with 88% of Group net fees generated from international markets
(HY 2019: 87%)
· COVID-19 was primary driver of profit impact, alongside strategic investment for the future
· Thoughtful management of headcount enabling market share gains in the Netherlands, Germany
and USA
· Investment in technology and infrastructure enabling more effective operation in future
· Profit impact offset by significant cost management initiatives implemented
· Initial response to COVID-19 executed swiftly to mitigate impact and capitalise on
opportunities
· Workforce moved rapidly to remote working, with a focus on adjusting and adapting to
effective operation irrespective of location
· No staff furloughed in a number of key regions
· Support provided to candidates, clients and other key stakeholders
· Strong financial position
· Strong balance sheet, with net cash at 31 May 2020 increased to GBP31.0 million (31 May 2019:
net debt GBP8.0 million) and immediately accessible liquidity of GBP136.0 million
· Access to RCF and CCFF available if required
* In constant currency
Mark Dorman, CEO, commented:
"These results are a story of two very different quarters and how resilient this business is in
the most extreme external environment. It has been a time of much change and volatility, however
two things that have not changed throughout are our purpose and our strategy.
Our purpose of "bringing skilled people together to build the future" has never been more
relevant and we have the right strategy, positioned between the accelerating secular trends of
STEM and flexible working. As we continue to make targeted investments in the Group, we are
positioning ourselves to best capitalise on this growing opportunity in the future. As a direct
result of our strategy, I have been pleased to see the Group deliver a resilient net fees
performance. Despite all the challenges faced we have continued to take market share, increased
our operating capabilities, and strengthened relationships with candidates and clients.
Our decision making is guided by our purpose. Already we have seen our teams supporting many
customers directly involved in tackling the crisis; from those involved in assuring the quality
of ventilators to those leading the vaccine research efforts. We are delighted to be placing many
of the people who will be crucial in providing a better future for us all.
Whilst times ahead remain uncertain, we have a strong financial position, a great opportunity,
and we are united behind our strategy which will guide us through the second half and beyond."
SThree is hosting a webinar for analysts today at 09:30 BST. If you would like to register for
the webinar please contact SThree@almapr.co.uk
A video overview of the results from the CEO, Mark Dorman, and CFO, Alex Smith, is available to
watch here: https://bit.ly/STEM_H1_2020_overview [1]
SThree will issue its Q3 trading update on 14 September 2020.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Steve Hornbuckle, Company Secretary
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Susie Hudson
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 3,000 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.
Chief Executive Officer's STATEMENT
A story of two parts
We set out in Q1 delivering and investing in line with the strategy which we had set out at our
Capital Markets Day in November 2019 and were executing as expected. As we indicated in our Q1
update on 16 March we had already begun to see macro uncertainty as a result of the impending
global pandemic. As we entered Q2 the COVID-19 pandemic, monitored closely by our crisis
management team, accelerated, bringing with it unprecedented uncertainty which required rapid
adjustments to our operations to enable us to navigate the new economic landscape.
The COVID-19 health crisis has altered the course of individuals, businesses and societies across
the globe. Governments have taken unprecedented action to prevent the further spread of the virus
with responses and impact differing significantly by region, country and city. These public
health responses and other government actions have led to dramatic economic declines across the
globe, the nature and speed of which has never been seen before.
At its core this remains a health crisis, which has spawned an economic crisis. As a consequence,
there is no global peacetime equivalent as governments quickly intervene to safeguard public
health and then subsequently provide fiscal and monetary stimulus to the economy. The wide and
varied nature of these, at times, conflicting actions has caused volatility that has no modern
day parallel. The road to recovery will not be a straight line, but a transition, with businesses
navigating this volatility over the period ahead and fundamentally changing for the long term.
There is no doubt that the pandemic has turned working practices on their head and accelerated
trends such as flexible working. Considering these changes, we have spent a lot of time during
this period speaking to our customers and candidates, understanding their needs and adapting
accordingly. Across all sectors, questions have been raised and operations have been remodelled.
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DJ SThree: Half Year Results -2-
Businesses know that the world of work has changed and are trying to understand how best to
manage the workforce of the future. Supply chains will be rebuilt or adapted for resilience
rather than profit. Automation, data and data science will be crucial for all, as computer
assisted analysis is accessed to capture ever shifting insights.
SThree is alongside a host of businesses that have experienced unprecedented challenges
throughout this period, however we are navigating our course. We are confident that our strategy
is the right one: Talented people with STEM skills will be those solving the problems that
businesses are facing, and those are the candidates we place. We are focused on coming out of
this period in a strong position, continuing to deliver what our customers need both now and in
the future, and we are poised to deliver on our strategic ambitions.
Throughout this period and in the journey ahead, SThree's purpose of "bringing skilled people
together to build the future" has never been more relevant.
Inside our crisis response
In the immediate aftermath of the outbreak we created a framework for the organisation to work
with, breaking the crisis down into operational phases each with its own set of priorities.
1) Emergency Response
2) Ongoing Crisis Management
3) Recovery to the Next Normal
The Emergency Response phase began in early March, and we transitioned into phase two in early
April. We are now several months into ongoing crisis management which we see continuing for some
time.
This remains primarily a global health crisis and as such maintaining the safety of our people,
candidates and customers combined with full operational capability of the Group was our primary
focus. We acted quickly and efficiently to adjust our ways of working, allowing our entire
workforce to continue delivering remotely (at one point 98% of workforce). Alongside the physical
change to remote working our businesses also quickly adapted their operational arrangements to
respond to the rapidly changing situation. Aware of local measures, they remained focused on
helping their customers to achieve their objectives even as these shifted in response to the
challenging external environment.
Alongside this, we implemented initiatives to ensure the business remained on a strong financial
footing throughout this period and beyond. Underpinning all our decisions is the clear objective
to balance the need to secure the short-term financial strength of the Group, whilst retaining
the skills, capacity and management capability to fulfil our undimmed strategic ambitions.
Maintaining a strong balance sheet is critical at times of intensified uncertainty; therefore, we
took the difficult decision to withdraw the 2019 final dividend of 10.2 pence per share, detailed
in the Group Annual Accounts and Report 2019 and Notice of the Annual General Meeting. The Board
recognises the importance of dividends to our shareholders and will keep future dividend payments
under review.
We reviewed our cost base. Initially, in phase one, we ceased all hiring and have since managed
headcount as appropriate to the varied local conditions. We maintained a particular focus on
working capital management and all non-essential capital expenditure was postponed, as were all
discretionary costs. Salaries of the Executive Directors of the Board and senior executive team,
and the fees of the Non-Executive Directors, have been temporarily reduced by 20%, with the
Executive Directors also foregoing 2020 bonuses.
SThree welcomed the government support given to businesses globally, taking up the opportunity to
defer various tax payments and receiving a reimbursement of wages under the job retention scheme.
We have qualified for the UK Government's COVID Corporate Financing Facility ('CCFF'). Under the
scheme, we received confirmation that we are eligible to access up to GBP300.0 million of funding.
Of this, we agreed, in consultation with our existing lenders, that the CCFF facility will be
capped at GBP50.0 million. To date we have not drawn this down.
As we continue to navigate through the pandemic we are not waiting for the market conditions to
change, but focused on learning to operate better in whatever environment we are in, utilising
our agility and expertise to navigate a successful path and grow our market position for the long
term.
Supporting our people, clients and candidates
Protecting our people, clients and candidates is key to ensuring that we come out of this crisis
stronger and more resilient than ever before. These are the people that will help us shape our
business for months and, likely, years to come. Our purpose, "bringing skilled people together to
build the future", continues to be central to everything we do as a business.
The ongoing wellbeing and engagement within our teams is a priority and, as such, we have
launched various initiatives to drive engagement and foster a sense of community. Our
'Coronavirus Knowledge hub' is a dedicated space providing materials for learning and
development, including guidance on managing remote teams and guidance on remote working for our
consultants. Alongside this we have accelerated investment in our digital learning platform to
provide learning on demand for all. We have also launched a wellbeing programme called Thrive
which is based on the responses received to our recent internal pulse survey and provides time,
support and resources to our people to help them look after their wellbeing in four areas; body
and mind, self-purpose, personal growth, and financial stability.
Our focus has not stopped at our people - we have provided support and material to help our
contractors understand how to remain active with regional, brand-led contractor information hubs
set up online to include rolling updates and support.
We have not lost sight of all the hardship that our society and local communities are facing, and
we recognise that many of the communities we operate in are experiencing serious challenges.
Therefore, in line with the Group's purpose-driven culture, we announced in March an extension to
the paid volunteering leave we offer and are encouraging all our staff to make use of this time
to safely volunteer.
At a regional level, it is worth highlighting how our teams have gone above and beyond to help
many customers directly involved in tackling the crisis. We have seen examples of amazing
behaviour, work collaboration, courage and innovation. As an example, our US business worked
closely with their client, a major medical devices and protective equipment manufacturer, to
place quality assurance and regulatory affairs specialists who ensure the medical devices,
ventilators and protective equipment used in defence against COVID-19 are safe to use. Our DACH
business explored new opportunities within Life Sciences and continues to work with their clients
to place the experts who are leading the research efforts to find a vaccine for COVID-19. Within
the UK we have closely collaborated with the NHS, for whom at the peak of the crisis we supplied
nearly 300 contractors. We have been placing candidates with Business Intelligence experience to
manage clinic systems and process electronic recovery information for front line clinicians,
ultimately helping the NHS make well-informed decisions in the COVID-19 response.
Testament to the strength of the support we have given to our clients and candidates, we've
recorded an impressive improvement in Net Promoter Score ('NPS') across the business, from both
clients (up 7 points to a score of 37) and candidates (up 4 points to 52). This demonstrates the
value our customers attribute to our ongoing support and the flexible approach we have taken to
meet new or changed demands.
Performance update
As previously mentioned, H1 trading performance is a story of two quarters and can be seen to
change rapidly between Q1 and Q2. In the first quarter, the Group recorded net fees of GBP75.3
million in line with expectations; a robust performance delivered despite a number of
macro-economic headwinds.
In Q2, as the COVID-19 pandemic accelerated and the intensity of the economic toll this would
take became clearer, businesses across the globe took action, significantly impacting the
aggregate demand for staffing. Despite this SThree saw Group net fees decline only 12%*
year-on-year, to GBP75.9 million in Q2. This resilient performance is largely thanks to the nature
of Contract work, the majority of the Group's activity, which naturally insulates net fee income
over the short term. Taken together over the first half Group net fees were 7%* down
year-on-year, to GBP151.2 million. Contract, our strategic focus, declined by 5%* in the first half
and now represents 76% of Group net fees.
Adjusted operating profit for the period was GBP13.3 million which is down against prior year (HY
2019: GBP24.6 million). The decline was driven primarily by the impact of COVID-19 alongside our
strategic decision to invest for the future; balancing the current economic headwinds with the
acceleration of the long term secular trends of STEM and flexible working, we are implementing
programmes to right-size our cost base, whilst continuing to make targeted investments and
bolstering the strength of our core platform. Average Group headcount was up 2% in the half, with
net investment in DACH and the USA offset by reductions in other regions.
Performance across markets and geographies varied hugely depending on government responses and
the demand patterns of the niches within sectors. An example of this is the need for supply chain
expertise among pharmaceutical manufacturers who are rapidly scaling up output for vaccines and
treatment, whilst roles needed for planned surgeries have decreased. Within Technology,
digitisation has been a key driver - both in the immediate term, as forced by the pandemic, but
also for the longer term as part of wider business plans**.
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This has played out within our regions. The Netherlands and the UK were more challenging with
various factors impacting performance, including certain niches that have been impacted by the
pandemic. The USA and Germany remained robust with the USA benefitting from high demand for
Quality Assurance in the drugs market and digital transformation projects, and Germany seeing a
strong performance in Infrastructure and Software Development.
* In constant currency
Our view of the future
Our immediate priorities
Whilst the global fight to contain the virus continues we will be in our ongoing crisis
management phase, volatility will persist, and demand will be uncertain as businesses deal with
the impact of government responses and adapt to this new environment.
As such, it remains impossible to know exactly what lies ahead while the pandemic continues, and
regions deal with their current outbreak level. It should also be noted that as we have seen with
the "R" rate in Germany and a number of other regions, recovery is not necessarily a straight
line. Notwithstanding the lack of clarity on what the future looks like, the Group will continue
to engage with candidates and with clients to deeply understand trends that create products of
the future. Alongside this, we will drive operational improvement within our core businesses,
focused around people, process and technology, whilst of course, underpinned by disciplined cost
management.
It is clear that this crisis will have a lasting impact, and SThree is therefore working to
ensure we are best positioned to work in the new world. This includes learning to operate in a
blended environment of working, navigating our own recruitment and onboarding, investing in
learning and development. A good example of how we are facilitating this is in Germany, where we
did not furlough any of our staff. Whilst the office in Germany has been open for some time, the
team there are being encouraged to adapt and adjust to working effectively, irrespective of where
they are located. Alongside these operational changes, we are improving the way we capitalise on
our data, investing in virtual interview and placement solutions and increasing knowledge sharing
across our global business. We are confident that we have the right ingredients to steer the
Group effectively in the new world of work.
Secular trends
As market trends shifted in response to COVID-19 outbreak, the criticality of STEM skills has
been highlighted. In the medium to long term the pandemic has accelerated the demand for STEM
skills and digital transformation is a priority for every business and every sector. Alongside
this, the seismic shift in working practices has changed the workplace and many businesses are
adopting these for the long term, with the notion of flexible working and flexible workforces of
the future entering the lexicon of business as a key priority. SThree sits at the centre of these
two long term secular trends; STEM talent and Flexible Working, that have now been accelerated as
a result of this crisis.
We have been engaging with our customers in critical conversations with them to better understand
their needs and priorities, for now and into the future, to help them drive their businesses
forward. Many customers are discussing the ability to widen the pool of talent with remote
working, and the fact that being present on site will not be required*. Our scale, local
knowledge and true expertise in STEM positions us well to help those businesses with whatever
their staffing needs may be. In times like this there is even more value in our niche market
approach and knowledge base.
Investing in the future to drive our strategy
Our strategy is absolutely the right one; our focus on STEM and flexible working has underpinned
our resilience and will continue to do so.
Notwithstanding the current uncertainties, our focus on building for the future has not wavered,
and we are investing in the areas that we are confident will drive growth. This includes our own
digital enablement, continuing our use of data and insights to drive the business, investing in
the right tools and technology, continued learning and development and being judicious about
where we focus our headcount. We came into this period selectively investing in the right markets
and will continue to do so to position us for the future.
Summary
Whilst this has undoubtably been one of the toughest times, not just for our Group but many
others, we are pleased with the resilience our business has shown. I would like to thank the
spirit and dedication of our colleagues, who, through much adversity, have truly delivered in the
period, driving the results we have announced today.
As a purpose driven organisation 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. We are helping build
communities of talent and future-proofing people's careers, and we look forward to providing our
customers with their most valuable asset in the period ahead.
Throughout this period, our focus has remained on positioning the business to achieve our
strategic ambitions, and whilst the route we take to get there may be different from what we
expected, our ultimate aim remains the same. As a strong business with a solid financial
position, an excellent team, the right strategy and buoyed by the strength of the secular trends
we play upon, we are confident we will exit this crisis well positioned to make the most of the
opportunities ahead of us.
**SThree's customer insights research, May 2020
Group OPERATIONAL REVIEW
Overview[1]
The Group's robust performance in Q1 was outweighed by the impact of the COVID-19 pandemic in Q2
across all our territories and sectors. The Group is well diversified, with international
operations which now account for 88% of net fees. Performance has been varied across different
regions, sectors and within specific niches. From a regional perspective the USA and Germany in
particular continue to perform robustly, delivering creditable results in the first half.
Our strategic focus on Contract has provided the business with greater resilience in more
uncertain economic conditions. However, DACH, our largest Permanent market, proved resilient with
net fees down 1%*.
Adjusted operating profit was down 49%* year-on-year as we continued to make targeted investments
and bolstered the strength of our core platforms with an eye on the medium to long term, whilst
implementing programmes to right-size our cost base.
Whilst broader market conditions are challenging, the STEM markets remain relatively robust and
we are confident we can maximise our opportunities with selective headcount growth.
In what has been a challenging period for our teams the quality of our management and increasing
expertise in our niche markets is driving us forward on our journey to become the number one STEM
talent provider in the best STEM markets. We are committed to ensuring that SThree is well
positioned over the long term and are confident we can continue to exploit the accelerating
secular trends of STEM and flexible working across global markets and deliver our long-term
ambitions.
Group
Net fees by division
Growth year-on-year (In HY 2020 Mix
constant currency)
Contract Permanent Total Contract Permanent
Q1 20 +2% -6% 0% 75% 25%
Q2 20 -11% -17% -12% 76% 24%
HY 20 -5% -12% -7% 76% 24%
Breakdown of net fees HY 2020 HY 2019 FY 2019
Geographical split
EMEA excluding DACH 40% 43% 41%
DACH 33% 31% 32%
USA 24% 22% 23%
APAC 3% 4% 4%
100% 100% 100%
Sector split
Technology 45% 45% 45%
Life Sciences 22% 19% 20%
Engineering 22% 21% 21%
Banking & Finance 9% 12% 11%
Other sectors 2% 3% 3%
100% 100% 100%
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 proved resilient in the current trading environment, which is a
testament to our strategy, with net fees down 5%* in the period. Average Contract sales headcount
was flat in the period, however our DACH and USA regions saw investment in heads in the period.
Contract now accounts for 76% of Group net fees. Contract NFDR is up 2% YoY with Contract margin
at 20.3% up from 19.8% in H1 2019. The period ended with contractor numbers of 8,875, down 17%
year-on-year.
Our Permanent business saw a larger impact from the current trading environment with net fees
down 12%* in the period (Q2 down 17%*). DACH, our largest Permanent market was down 1%* in the
period, in part due to Q1 performance with Q2 down 9%*. USA net fees were down 10%* and Japan
down 24%*. We have seen an increase in Permanent average fee up 3%* YoY in the period. Average
Permanent sales headcount was down 1%, however we have invested in our key Permanent markets and
will continue to do so strategically.
Operational review by reporting segment
EMEA excluding DACH (40% of Group net fees - GBP60.5 million)
Net fees by division
Growth year-on-year (In HY 2020 Mix
constant currency)
Contract Permanent Total Contract Permanent
Q1 20 -3% -19% -6% 85% 15%
Q2 20 -16% -25% -17% 86% 14%
HY 20 -9% -22% -12% 85% 15%
EMEA excluding DACH region is our largest region comprising businesses in Belgium, Netherlands,
Luxembourg, France, Spain, UK, Ireland and Dubai.
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