SThree plc

 

RESULTS FOR THE six months ENDED 31 MAY 2023

 

Resilient performance in H1 driven by our contract business

 

SThree plc ('SThree' or the 'Group'), the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics (STEM), today announces its financial results for the six months ended 31 May 2023.

 

FINANCIAL HIGHLIGHTS

HALF-YEAR HIGHLIGHTS 

·	A resilient performance, with Group net fees down 2% YoY(3) on a constant currency basis, against the strong post-Covid comparative period (H1 FY22 YoY growth: 25%) and backdrop of global macro-economic conditions.
	o	Across our three largest countries: Netherlands up 3%, Germany down 1% and USA down 11%, together accounting for 73% of net fees.
	o	Growth seen across Technology, up 1% and Engineering, up 17%, while Life Sciences was down 21% driven by global sector trends.
·	Reflecting both our strategic focus on flexible talent together with global market conditions, Contract net fees were up 3%, supported by strong extensions, robust pricing and increased contract lengths, while Permanent was down 19%.
·	Contract net fees represented 81% of Group net fees (H1 FY22: 77%), with the contractor order book(4) value of £190.3 million, which is flat YoY, providing good visibility for the remainder of FY23.
·	Margin of 18.3% remains above FY22 levels delivering profit before tax of £38.5 million, down 20% YoY (H1 FY22: £44.3 million), due to the planned investment in the Technology Improvement Programme and headcount.
·	Strong balance sheet, with £72.4 million in net cash as at 31 May 2023 (H1 FY22: £48.4 million).
·	Interim dividend approved at 5.0 pence per share (H1 FY22: 5.0 pence). We intend to remain in line with our dividend policy of cover in the range of 2.5x to 3.0x for the full year.
·	Technology Improvement Programme on track and on budget, with the integrated platform passing through business user testing with excellent feedback.
	o	Key to delivering a differentiated proposition within the market, driving both scale and higher margins over the mid-to-long term.
	o	Phased geographical roll out on track to commence in H2 FY23, onto which SThree's bespoke methodologies will be layered to systematise best practice, improve data and workflows.
·	Sustainable business practice and ESG commitments demonstrated by:
	o	Over 17,375 lives positively impacted in H1 FY23 (H1 FY22: 16,540).
	o	SThree's renewables business up 29% versus H1 FY22 (H1 FY22: up 22% versus H1 FY21).
	o	44% carbon reduction in FY22(5) in comparison to 2019, our baseline year for our SBTi net zero target.
	o	33% of women (H1 FY22: 30%) in leadership as we progress towards achieving our ambition of 50/50 representation in leadership.

 

⁽¹⁾ Variance compares reported H1 FY23 against reported H1 FY22 on a constant currency basis, whereby the prior financial period foreign exchange rates are applied to current and prior financial period results to remove the impact of exchange rate fluctuations.

⁽²⁾ Net cash represents cash and cash equivalents less borrowings and bank overdrafts and excluding leases.

⁽³⁾  All YoY growth rates in this announcement are expressed at constant currency.

⁽⁴⁾ The contractor order book represents value of net fees until contractual end dates, assuming all contractual hours are worked.

⁽⁵⁾ Target not measured at mid-year.

 

Timo Lehne, Chief Executive, commented:

"Our focus on STEM and flexible talent has delivered a resilient performance in the first half of the year against strong comparatives and macro-economic headwinds. This was underpinned by the Group's strategic focus on Contract, which grew 3%, following robust extensions and pricing as companies commit to holding on to required skills in the face of ongoing acute shortages.

We have made excellent progress against the four pillars of our strategy to ensure the business has the right people, structures and processes to support the next phase of our growth. The rollout of our Technology Improvement Programme is on track and on budget, and will be a key enabler in us delivering a unique proposition within the market, driving both scale and higher margins over the mid-to-long term.

The macro-economic backdrop remains unpredictable in the short-term, however our established leadership position and progress with our Technology Improvement Programme leaves us more confident than ever in our growth strategy."

 

Analyst conference call

SThree is hosting a webinar for analysts and investors today at 08:30 BST to present the Group's results for the six months ended 31 May 2023. If you would like to register for the conference call, please contact  [email protected].

SThree will issue its Q3 trading update on 19 September 2023.

           

Enquiries:

SThree plc                                                                                                                                                            

Timo Lehne, CEO                                                                 via Alma

Andrew Beach, CFO                                                                           

 

Alma PR                                                                              +44 20 3405 0205

Hilary Buchanan                                                                   [email protected]

Sam Modlin

Will Ellis Hancock                

 

Notes to editors

SThree plc brings skilled people together to build the future. We are the only global specialist talent partner focused on roles in STEM, providing permanent and flexible contract talent to a diverse base of over 8,200 clients across 14 countries. Our Group's c.2,800 staff cover the Technology, Life Sciences and Engineering sectors. SThree is part of the Industrial Services sector. We are listed on the Premium Segment of the London Stock Exchange's Main Market, trading with ticker code STEM.

 

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. Certain data from the announcement is sourced from unaudited internal management information and is before any exceptional items. Accordingly, undue reliance should not be placed on forward looking statements.

 

 

Chief Executive Officer's STATEMENT

 

Resilient performance and strategic progress

The Group's resilient performance in the first half is underpinned by our strategic and well executed focus on sourcing and placing highly skilled, flexible STEM talent. With a backdrop of macro-economic headwinds and an exceptional prior-year performance, to have delivered the same scale of business well above pre-pandemic levels whilst progressing our Technology Improvement Programme in line with plan, on track and on budget, is testament to the quality and commitment of our global teams.

Our specialism in both STEM skills and new ways of working provides a differentiated proposition to clients and candidates and a unique business model aligned to long-term structural opportunities. With these complementary pillars as the Group's bedrock, built over decades of industry experience, we have made meaningful strides during the period in progressing our strategic initiatives to build a more effective, customer-focussed, responsible and purposeful business for long-term sustainable growth.

 

Unique and robust business model through uncertain and volatile markets

Through the first half of FY23, unprecedented market dynamics that commenced at the end of the previous financial year, including high inflation and rising costs of living coupled with low unemployment, drove varying impacts across our global markets and skill disciplines, resulting in an overall softer macro-economic outcome. Whilst our clients paused to assess near-term outlook and their own investment and expansion plans, which is reflected in our lower new placement activity, Contract extensions remained robust, including a 20% YoY increase in average contract length coupled with steady pricing levels. This demonstrates clients' commitment to retaining highly sought after skills in the face of supply challenges and the quality of our business model.

Overall, the Group's net fee performance of £208.6 million represents a 2% constant-currency decrease against peak prior year levels (H1 FY22: 25% growth to £203.1m). The performance was driven by our strategic focus on Contract, now representing 81% of Group net fees, which increased 3% following growth across the majority of our regions. Within this, our Employed Contractor Model (ECM), whereby contractors are directly employed by SThree for the duration of the contract, is an increasing trend and driver of our performance, representing 45% of all Contract work undertaken by the Group (H1 FY22: 43%). It continues to be the predominant model in the US, and is fast-growing across Europe, which is why the introduction of automation to ECM processes, enabling scale, is a key aspect of the Technology Improvement Programme. This was offset by our Permanent business, down 19% on a like-for-like basis, reflecting global market conditions and the continuing strategic investment into Contract in several markets.  

Reported operating profit for the period was £38.1 million (H1 FY22: £44.6 million) driven by a resilient performance in net fees but offset by higher operating expenses, up 8% YoY on a reported basis, including the investment in the Technology Improvement Programme (£2.6m expensed in the period) which commenced in the second half of FY22. We continue to invest modestly in headcount, up 5% YoY, targeted towards Contract in specific niches, and the phased investment in our strategic priorities is on track. We have seen some normalisation of productivity from the exceptional levels experienced in H1 FY22 as new hires come on board, however it remains 28% above pre-pandemic levels achieved in H1 FY19, and once our Technology Improvement Programme is rolled out across the whole organisation we expect productivity to increase.  

 

Building a world-class STEM talent partner through strategy and execution

Our vision is unchanged: to be the #1 STEM talent partner in the best STEM markets and in doing so, build a business with scale and sustainable margins. The Group has achieved considerable success toward this vision since its founding almost 40 years ago through entrepreneurial drive and execution, helping candidates realise their career ambitions and businesses succeed with access to the skills they require.

Building on this heritage, we are now focused on preparing the business with the right people, structures and processes to support its next growth evolution. The strength of our business platform, combining global scale with the flexibility of an agile business able to deploy resources as appropriate, continues to provide robust foundations from which we have advanced our disciplined and focused strategy - centred on four strategic pillars: our Places, our Platform, our People and our Position.

Following extensive assessment and planning in the prior year, I am delighted with the progress we are making against all four as we move through the execution phase. The opportunity to standardise best practice, accelerate speed to productivity and drive efficiencies through the organisation and work closer together as a global team to the benefit of all our stakeholders is huge, and we are excited about the prospects ahead.

Our Places - to be a leader in the markets we choose to serve

With an overall strategy geared toward STEM and Contract, we have a unique and targeted mix of skills and markets, which we continuously assess through a data-driven approach. The markets and disciplines we operate in are deliberate and strategic, and whilst there may be variances across these over time as was the impact from Life Science in this period offset by strong Engineering performance, we have chosen our focus areas based on where we see long-term structural opportunities. We concentrate efforts on those niches with the highest demand for STEM specialists and limited supply and where we can generate the highest returns.

We remain well-positioned in the world's top five STEM markets, representing 74% of the £112 billion global opportunity, being the USA, Germany, UK, Japan and Netherlands. In line with our market investment model, we saw scope to make our operating structure and regional presence less complex and more focussed in those markets that offer the greatest growth opportunities for our unique proposition. As part of this, we took the decision to restructure our position in some markets, such as Singapore, Ireland and Hong Kong, streamlining our focus further.

Additionally, we continued to apply pricing discipline in our markets while inflationary pressures remained, strengthening our commercial discipline to ensure contractor rates are in line with market rates. Our focus continues to be on improving the quality of our market insights to support our decision-making. 

Our Platform - create a world class operational platform through data, technology and infrastructure

We continue to make great progress with the strategic investment in our Technology Improvement Programme, where we saw significant scope to re-engineer, simplify and automate some of our most manual and complex processes. We believe these improvements, along with implementing and systemising best practice across the Group, will create a platform of operational excellence and an environment which will ultimately improve the experience and outcomes for our candidates and clients.

The programme has moved from detailed planning into execution mode, and in line with our previously announced plans, is on track with budget. During the first half, we engaged with leaders across all sections of the business at our design conference in London, following which we completed phase one development and progressed through business user testing with strong positive feedback.

We are in the final stages of preparation for market rollout starting later in FY23, commencing with the US followed by Germany, with other markets scheduled for FY24. We are excited about the future as a modern and innovative business, with the potential to leverage new technologies as appropriate and put ourselves in a unique position to win.

Our People - find, develop and retain great people

Our commitment to creating an environment to support our people whereby they can fulfil their potential is fundamental to the success of the business. Building on achievements last year, including the launch of our leadership behaviour framework, we continue to focus our efforts on initiatives that will unite our global teams closer together and ensure our culture moves forward with the evolution of the business.

Key areas of focus during the first half of the year included the continued rollout of our 'Leading with Purpose' programme, with the ambition to upskill all people managers across the Group on the four essential roles of leadership; continued assessment and refinement of our compensation framework and improved reward communication; implementation of new succession planning and career pathways processes; and employee engagement surveys which attracted 81% engagement across the Group. We also bolstered our leadership team in this area with the appointment of a new CPO, ensuring we have the support and bandwidth in place to deliver on this mission.

As we look ahead, we will continue to invest in capabilities, tools and initiatives to attract and retain the best talent, such as supporting hybrid working through our Future Office property redesign programme. In H2 we will be focusing on our Future Culture programme with global workshop events across regions to co-design the Company's values with employees.

Our Position - leveraging our position in STEM to deliver sustainable value to our candidates and clients

SThree enjoys a strong and established position in our core markets, serviced through our 'House of Brands' approach with high brand value in the niches we operate. As we look to leverage this position to grow share in our target markets, we have further enhanced our efforts in elevating our leadership position, building further on our refreshed brand identity launched in the prior year.

Key developments in the period include new thought leadership campaigns centred on the future of the world of STEM and how global megatrends, including decarbonisation and digitalisation, are shaping our future. Findings from our research conducted across our extensive STEM talent network, 'How the STEM World Evolves', provide insights on topics such as flexible working expectations, job security and pay risk appetite, job priorities and career ambitions, ensuring we remain well attuned to the evolving sentiment within our target markets.

Other areas of focus include our Elevate Careers programme, which sees us work alongside community partners, clients, internal stakeholders, and leadership, to create immediate action that will build a more diverse, inclusive, and sustainable future, for historically underrepresented STEM talent communities. We also continue to refresh and upgrade our digital assets in the markets in which we operate to drive brand awareness, as well as work towards the closer alignment of marketing and sales in our regions.

Our established position at the centre of STEM has enabled us to deliver excellent results for our clients. Examples of our work include:

·

Staffing support for a global renewable construction company to build a major wind farm in the US to remove nearly 2 million tons of carbon dioxide emissions annually. SThree was able to deploy the right skilled talent quickly, thanks to extensive niche sector expertise, which made it easier for the project owner to keep momentum going even through design revisions. The wind farm became operational on schedule and as planned, demonstrating SThree's dedication to helping renewable energy companies rise above expectations and succeed through challenges.

·

Delivering customer staffing solutions for one of the world's largest medical devices company. The customer required quality candidates with a quick turnaround in a highly competitive market, often with few briefing details on the type of candidate required. The SThree team ensured they became experts across the niche roles required, including clinical, finance and accounting, regulatory and IT engineering, and, with the help of leveraging qualitative data, have been able to fill 693 positions, with 1 out of 2 interviews leading to a filled role. The longevity working with this client and SThree's position as a market expert by providing invaluable data has resulted in a trusting and long-lasting partnership.

We remain committed to continuously improving and evolving the way we interact with our candidate and client communities, ensuring we continue to serve our stakeholders as a trusted STEM talent partner.

 

Creating a sustainable future for everyone

SThree brings STEM professionals together to build a sustainable future. From placing engineers who build wind turbines to providing skilled people to enhance medical research, STEM talent continues to play a vital role in tackling the most complex issues facing our world.

Our commitment to our ESG goals remains strong as we navigate the complexity of the multiple challenges we now operate within. As the world continues to shift and change in response to complex global issues, we continue to remain focused on delivering value to all stakeholders. With clear targets and metrics, we hold ourselves accountable to deliver the right outcomes for everyone, mitigating social and climate risks, delivering social value and contributing to business performance.

We remain focused on addressing the STEM skills gap through diversifying the talent pipeline and contributing to social mobility and equity in the STEM industries we partner with. To demonstrate our commitment to building a diverse STEM talent pipeline we made a donation of £86,000 to Women Who Code and have delivered three events with them in H1 FY23 to support women to progress their career in tech. Our Elevate Careers programme provided developing, coaching and mentoring support to 1,853 existing and aspiring STEM professionals in the first half of FY23.  

In our FY22 Impact Report we announced our Science Based Target initiative (SBTi) validated near-term and long-term targets to achieve net zero before 2050. In FY23 we continue to make progress to deliver a robust transition plan for the business which will be detailed in our Annual Report and Accounts for FY23.

Further details of our net zero targets and wider ESG commitments can be found in our Impact Report on our website. Below details the progress we have made against our stated ESG targets during the first half of the current year (2019 baseline year):

 

	To positively impact 150,000 lives by 2024	To double the share of our global clean energy business by 2024	To reduce our scope 1 and 2 emissions by 77% and reduce scope 3 emissions by 50% by 2030	To increase representation of women in leadership to 50/50
Progress	106,116 lives positively impacted by SThree since 1 Dec 2019.	88% growth in clean energy business as of 2022, tracking ahead of expectations.	-44% reduction in scope 1, 2 and 3 CO2 emissions* in 2022 from 2019 (baseline)	33% women currently in leadership positions
FY23 half year activities	17,375 lives positively impacted: 7,897 accessed decent work through SThree placements  414 people at risk of unemployment accessed our Career Support Initiatives.   1,853 existing and aspiring STEM professionals accessed Elevate Careers; a STEM skills development programme to build a diverse talent pipeline	29% growth in our renewables business net fees in H1 FY23 YoY. 132% growth in our renewable business net fees since 2019 (baseline)	Continued to develop our transition plan with key actions to green our office portfolio, minimise emissions from travel and engage suppliers in scope 3 reductions.	Launched our talent accelerator programme, Identify, with the third group of aspiring women leaders.
Alignment to strategic pillars	Our People Our Position	Our Places	Our Platform	Our People
Relevant UN Sustainable Development Goals	SDG 4. Quality Education SDG 8. Decent Work and economic growth SDG 10. Reduced inequalities	SDG 7. Affordable and clean energy SDG 13. Climate action SDG 17. Partnerships for the goals	SDG 13. Climate action	SDG 10. Reduced inequalities

* Full SECR reporting is available in our FY22 Annual Report and Accounts.

 

Current trading and outlook: poised for the medium-term opportunity

We look ahead to our mid-term opportunities with optimism and believe our focus and strategy is right for long-term success. Our specialism in scarce STEM talent and new ways of working provides a differentiated proposition to clients and candidates and a unique business model aligned to long-term structural drivers.

Macro conditions continue to be varied as we enter the second half, however contract extensions remain strong as our customers seek to retain scarce skills to ensure they do not jeopardise future growth prospects. Furthermore, in June we saw a modest improvement in new placement activity, which itself was slightly ahead of the second quarter average. It is too early to know whether this is an improving trend, but we will continue to monitor and respond to activity levels over the coming months.

We are trading in line with market expectations for the full year, supported by strong contract extensions and robust pricing, leading to continued resilience of our contractor order book. We expect to deliver sector leading operating margins, notwithstanding investment in both infrastructure and strategic headcount to ensure we remain well positioned for when market conditions improve.

 

Group OPERATIONAL REVIEW

 

Overview

The Group has delivered a resilient net fee performance in the first half of FY23 with net fees down 2% YoY against the strong post-Covid peak performance in H1 of FY22. 

Our Contract business, which is our main strategic area, grew net fees by 3% YoY and now represents 81% of the Group net fees. The contractor order book is flat YoY as strong extensions performance has continued to offset the new placement performance in a more challenging macro-economic environment.  Permanent net fees were down 19% YoY reflecting both global market conditions and tough comparatives, particularly in Life Sciences, together with our targeted investment towards Contract in specific markets.

From a skills perspective, most notable during the first half has been the impact of reduced expenditure in the Global Life Sciences sector, which has affected the performance of most markets, with the greatest exposure and impact on our USA business.  As a result, we saw a decline in Life Sciences net fees of 21% across the Group, though this was mostly offset by increases in Technology, up 1%, and Engineering, up 17%.

Overall, Group reported operating profit was £38.1 million (H1 FY22: £44.6 million), down 22% YoY as productivity levels have normalised since H1 FY22, with average headcount up 5% YoY, and we commenced the investment in our Technology Improvement Programme from the second half of last year.

The 5% increase in our average headcount reflects a 9% increase in Contract headcount, partly offset by a 10% decline in Permanent headcount as we continue to invest strategically in specific markets.  Period-end headcount declined 9% compared to the end of FY22, including the reductions related to the restructure of our Singapore, Hong Kong and Ireland businesses. Excluding these countries, period-end headcount declined by 7%.

 

Update and evolution of 2024 ambitions

In line with our 2024 ambitions announced at our Capital Markets Day in 2019 to deliver growth and value for our Group and all stakeholders, we continue to make good progress in the period in our journey to become the number one STEM talent provider in the best global STEM markets. Our key achievements so far in this financial period included:

·	We remain ahead of our peer group in all core geographies on the net fee growth basis vs FY19.
·	Achieved an operating profit conversion ratio of 18.3% in H1 FY23.  Our underlying conversion ratio, both before and after costs associated with the Technology Improvement Programme, continues to considerably exceed our pre-Covid performance. We remain committed to our ambition of achieving margins at 21% or higher in the mid to long term, however we expect current macro-economic headwinds to dampen margin progression in the short term.
·	Reduced our carbon emissions by 44% versus 2019.
·	Group-wide eNPS was 47 at H1 FY23; supported by DE&I networks and the launch of the third cohort of the Identify leader programme, our eNPS remains within the top 25% of a Professional Services industry.
·	In the fight against climate change, we launched several actions to educate and influence sustainable behaviours across the business to ensure we make progress towards our SBTi net zero targets which were announced in April 2023. We also grew our renewables business by 29% YoY, to represent 9% of Group net fees at H1 FY23.
·	Positively impacted over 17,375 lives through delivering recruitment solutions and community programmes in H1 FY23 alone.

 

Group net fees	% of Group	H1 FY23 (£'000)	H1 FY22 (£'000)	Variance
				Reported	Like-for-like (1)
Geographical mix(2)
DACH	36%	74,476	70,489	+6%	-
USA	23%	49,364	51,683	-4%	-11%
Netherlands (including Spain)	19%	39,381	35,884	+10%	+5%
Rest of Europe	17%	35,178	35,377	-1%	-2%
Middle East & Asia	5%	10,192	9,620	6%	+6%
Total	100%	208,591	203,053	+3%	-2%
Skills mix
Technology	49%	101,712	96,339	+6%	+1%
Engineering	24%	51,223	41,679	+23%	+17%
Life Sciences	19%	38,958	46,293	-16%	-21%
Other	8%	16,698	18,742	-11%	-14%
Total	100%	208,591	203,053	+3%	-2%
Service mix
Contract	81%	169,982	156,944	+8%	+3%
Permanent	19%	38,609	46,109	-16%	-19%
Total	100%	208,591	203,053	+3%	-2%

 (1)   All YoY growth rates in this announcement are expressed at constant currency.

(2)   In Q1 FY23, SThree has changed its reporting structure. The new groupings are: DACH, Netherlands (including Spain, which is managed from the Netherlands), Rest of Europe, USA and Middle East & Asia.

 

Business mix

The Group is well diversified, both geographically and by the skills we place across multiple sectors. Our top three countries represent 73% of Group net fees, with Germany accounting for 31%, USA 23% and the Netherlands 18% of Group net fees.

Our Contract business grew 3% YoY on a like-for-like basis, and now represents 81% of Group Net Fees.  Our Permanent business, which now represents 19% of net fees, saw net fees decline 19% in the period, reflecting market conditions across all regions, together with the strategic transition from Permanent to Contract in some of our key markets.

Technology, which represents 49% of net fees grew 1% YoY, while Engineering (24% of net fees) grew 17%.  These were offset by the decline in Life Sciences of 21% due to reduced global expenditure in that sector.  Life Sciences now represents 19% of Group net fees.

 

Operational review by reporting segment

 

DACH (36% of Group net fees)

	H1 FY23	H1 FY22	Variance
Performance highlights			Reported	Like-for-like
Revenue (£'000)	264,512	258,144	+2%	-4%
Net fees (£'000)	74,476	70,489	+6%	-
Average total headcount (FTE)	907	848	+7%	n/a
NPS	58	57	+1pts	n/a

 

DACH is our largest region comprising businesses in Austria, Germany and Switzerland, with Germany accounting for 88% of net fees.

The region saw net fees remain flat YoY, with our Technology business up 2% and Engineering business up 16% YoY. Technology was driven by higher demand for roles within Cyber Security and Software Development, while Engineering saw demand for Construction Management.

DACH delivered growth in Contract net fees of 1% YoY, which was broadly offset by Permanent net fees, which were down 3%.

Germany's net fees were down 1% YoY driven by Life Sciences which was down 22% due to market conditions across that sector. This performance was mostly offset by Technology, up 2% YoY, and Engineering up 13%.

Switzerland saw net fees grow 10% and Austria net fees remained flat.

Average headcount was up 7% YoY, with period-end headcount up 4%.

 

USA (23% of Group net fees)

	H1 FY23	H1 FY22	Variance
Performance highlights			Reported	Like-for-like
Revenue (£'000)	164,019	155,132	+6%	-2%
Net fees (£'000)	49,364	51,683	-4%	-11%
Average total headcount (FTE)	509	522	-3%	n/a
NPS	51	55	-4pts	n/a

 

The USA is the world's largest specialist STEM staffing market and our second-largest region on a net fee basis. It remains a key area of focus for the Group, and we will continue to invest in the region as we align our resources with the best long-term opportunities.

USA saw net fees decline 11% YoY. Contract, which represents 86% of net fees, was down 2% YoY driven by Life Sciences, down 16% YoY in line with the market conditions for that sector. This was partially offset by Engineering, up 23%, with increased demand for roles within Project Management and Electrical Engineering.

Permanent, which represents 14% of net fees, declined 43% driven by Life Sciences and due to the accelerated transition towards Contract in FY22.

Average headcount was down 3% YoY, with period-end headcount down 14%.

 

Netherlands (including Spain) (19% of Group net fees)

	H1 FY23	H1 FY22	Variance
Performance highlights			Reported	Like-for-like
Revenue (£'000)	177,497	150,711	+18%	+13%
Net fees (£'000)	39,381	35,884	+10%	+5%
Average total headcount (FTE)	436	365	+19%	n/a
NPS	36	39	-3pts	n/a

 

Net fees for the region were up 5% YoY, with Contract up 7% and Permanent down 19%.

The Netherlands, our largest country in the region which accounts for 95% of net fees, saw net fees increase 3% YoY. Notable performances were delivered in Engineering, up 4% YoY, with increased demand for Process Engineers, Electrical Engineers and Health and Safety advisors, as well as Technology up 3% YoY, with higher demand for Project Managers, ERP Consultants, Data Engineers and Data Sciences roles.

Spain saw strong growth of 63% in the first half driven by Technology.

Average headcount for the region was up 19% YoY, with period-end headcount up 11%.

 

Rest of Europe (17% of Group net fees)

	H1 FY23	H1 FY22	Variance
Performance highlights			Reported	Like-for-like
Revenue (£'000)	197,221	188,767	+4%	+3%
Net fees (£'000)	35,178	35,377	-1%	-2%
Average total headcount (FTE)	542	520	+4%	n/a
NPS	53	55	-2pts	n/a

 

Rest of Europe comprises of businesses in the UK, Belgium, France, Luxembourg and Ireland.

Net fees saw a decline of 2% YoY. Contract, which represents 94% of net fees for the region, grew 5%, with Permanent declining 48%, driven by both market conditions and the transition towards Contract, particularly in the UK.

The UK, our largest country in the region, saw net fees remain flat, driven by Engineering up 3%, as demand increased for roles within Project and Construction Management, Electrical and Mechanical Engineering.

Belgium saw net fees up 15%, France down 8% and Luxembourg down 35%.

Average headcount for the region was up 4% YoY, with period-end headcount down 10%.

 

Middle East & Asia (5% of Group net fees)

	H1 FY23	H1 FY22	Variance
Performance highlights			Reported	Like-for-like
Revenue (£'000)	21,962	19,495	+13%	+10%
Net fees (£'000)	10,192	9,620	+6%	+6%
Average total headcount (FTE)	189	200	-6%	n/a
NPS	24	29	-5pts	n/a

 

Our Middle East & Asia business principally includes Japan, UAE and Singapore, and accounts for 5% of Group net fees.

Net fees were up 6% YoY, with Contract up 52% and Permanent down 10%. Japan, which represents 43% of the region, was up 2% YoY driven by Engineering due to demand for roles within Renewable Energy.

Strong performance in UAE with net fees up 46% driven by Engineering.

Average headcount was down 6% YoY, with period-end headcount down 6%.

 

Chief financial officer's REVIEW  

The Group has delivered a resilient net fee performance in the first half of FY23, despite the ongoing macro-economic uncertainties and strong prior year comparatives. The performance is supported by the strength of our well-established strategy, focused on STEM and flexible talent.

Income statement

On a reported basis revenue for the half year was up 7%[1] to £825.2 million (H1 FY22: reported £772.2 million) while net fees increased by 3% to £208.6 million (H1 FY22 £203.1 million). The strengthening of our two main trading currencies, the US Dollar and the Euro, against Sterling during the year, increased the total net fees by £9.1 million. Therefore, when presented on a constant currency basis, the net fees decreased by 2% YoY.

Net fee growth in our Contract business was driven by continued demand from clients for candidates with STEM skills across most of regions, with net fee growth of 3%. This was led by the Netherlands region, which was up 7%, Rest of Europe, up 5%, DACH, up 1%, Middle East & Asia, up 52%, while USA was down 2%, primarily due to its exposure to Life Sciences. The majority of the growth was seen in Engineering, which was up 20% YoY, and Technology, up 3%, with Life Sciences down 14% reflecting global sector conditions. Our ECM proposition also continued to deliver encouraging performance and was up by 6% YoY. Group Contract net fees as a percentage of Contract revenue[2] remained flat YoY at 21.7% (H1 FY22: 21.7%), and at the end of the year Contract represented 81% of the Group net fees in the year (H1 FY22: 77%).

The contractor order book[3] remained flat YoY and continues to provide good visibility into the remainder of FY23.

Permanent net fee income was down 19% reflecting market conditions across all regions, together with the planned focus towards Contract, particularly in the USA and UK. Our largest Permanent market, DACH, reported a decline of 3%. Netherlands region was down 19%, Rest of Europe down 48%, USA down 43%, and Middle East & Asia was down by 10%. Permanent average fee increased by 5% YoY in the period, with average permanent fee margin (net fees as a percentage of salary) now at 26.6% (H1 FY22: 25.1%).

Operating expenses increased by 8% YoY on a reported basis, amounting to £170.5 million (H1 FY22: £158.4 million), resulting from increased personnel costs as average headcount grew 5% compared to H1 FY22, together with £2.6 million expensed investment in the Technology Improvement Programme which commenced in H2 FY22.

The reported operating profit was £38.1 million (H1 FY22: £44.6 million), down 22% YoY in constant currency while the Group operating profit conversion ratio reduced as expected, to 18.3% (H1 FY22: 22%), as productivity normalised from the exceptional levels achieved in H1 FY22 and we commenced the investment in our Technology Improvement Programme. Operating profit conversion ratio would have been 19.5% were it not for amount expensed on the programme as noted above. The net currency movements versus Sterling were favourable to the operating profit, providing a £3.3 million benefit.

Net finance income

The Group received net finance income of £0.4 million as compared to net finance costs of £0.4 million in the previous year. This was driven by significantly higher interest rates applied to the Group's bank deposits.

Income tax

The total tax charge for the half year on the Group's profit before tax was £10.8 million (H1 FY22: £12.3 million), representing an estimated full-year effective tax rate (ETR) of 28.1% (H1 FY22: 27.8%). The tax rate is higher in the current period mainly due to the increase in the UK tax rate to 25% from 1 April 2023. The Group's ETR varies depending on the mix of taxable profits by territory, non-deductibility of the accounting charge for LTIPs and other one-off tax items.

 

Overall, the reported profit before tax was £38.5 million, down 20% YoY in constant currency and down 13% on a reported basis (H1 FY22: £44.3 million).

The reported profit after tax was £27.7 million, down 21% YoY in constant currency and down 13% on a reported basis (H1 FY22: £32.0 million).

 

Earnings per share (EPS)

The reported EPS was 21.0 pence (H1 FY22: 24.1 pence). The YoY movement is attributable to the slowdown in trading performance, overall stable Group ETR, and partially offset by a decrease of 0.7 million in the weighted average number of shares. Reported diluted EPS was 20.4 pence (H1 FY22: 23.4 pence). Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods, depending on the profitability of the underlying tracker businesses and the settlement of vested arrangements.

 

Dividends

The Board monitors the appropriate level of dividend, taking into account achieved and expected trading of the Group, together with its balance sheet position. The Board aims to offer shareholders long-term ordinary dividend growth within a targeted dividend cover range of 2.5x to 3.0x through the cycle.

The Board proposes to pay an interim dividend of 5.0 pence (H1 FY22: 5.0 pence), amounting to c.£6.6 million in total. This will be paid on 8 December 2023 to shareholders on record on 10 November 2023. The dividend will be paid from distributable reserves.

 

Liquidity management

In H1 FY23, cash generated from operations was £55.1 million (H1 FY22: £24.2 million). The increase was primarily driven by £39.1 million release in working capital, as the rate of new placement activity slowed but was partially offset by Contract extensions, partially offset by £8.3 million reduction in EBITDA. Income tax paid decreased to £10.2 million (H1 FY22: £15.1 million) in line with the trading performance across our markets.

Capital expenditure increased to £3.0 million (H1 FY22: £1.9 million), primarily driven by the Group-wide digital transformation programme and related IT hardware costs. The capital expenditure also included costs of leasehold improvements and fitting out certain of our office portfolio.

The Group paid £7.7 million in rent (principal and interest portion) (H1 FY22: £7.0 million). Net interest income (excluding interest on lease payments) was £0.6 million (H1 FY22: net interest cost £0.1 million) during the period. The Group spent £10.0 million (H1 FY22: £4.7 million) on the purchase of its own shares to satisfy existing employee share incentive schemes. Cash inflows of £0.1 million (H1 FY22: £0.3 million) were generated from Save As You Earn employee scheme.

Dividends paid to equity holders were £6.6 million (H1 FY22: £4.0 million). The final dividend of £13.9 million for the year ended 30 November 2022 was paid subsequently to the half year, on 9 June 2023.

Foreign exchange had a positive impact of £2.6 million (H1 FY22: negative impact of £0.8 million).

Overall, the underlying cash performance in the first half of FY23 was very strong, reflecting primarily improved working capital partially offset by buyback spend. We started the year with net cash of £65.4 million and closed the period with net cash of £72.4 million.

Accessible funding

The Group's capital allocation priorities are financed mainly by retained earnings, cash generated from operations, and a £50.0 million Revolving Credit Facility (RCF). This has remained undrawn during the period, but any funds borrowed under the RCF would bear a minimum annual interest rate of 1.2% above the benchmark Sterling Overnight Index Average (SONIA). The Group also maintains a £30.0 million accordion facility as well as a substantial working capital position reflecting net cash due to SThree for placements already undertaken.

During the current period, the Group did not draw down any of the above credit facilities (H1 FY22: £nil).

On 31 May 2022, the Group had total accessible liquidity of £125.6 million, made up of £72.4 million in net cash (H1 FY22: £48.4 million), the £50.0 million RCF (undrawn at the half year), and a £5.0 million overdraft facility of which £1.8 million was in use at the half-year end.

 

PRINCIPAL RISKS AND UNCERTAINTIES

Risk management is a key part of our business, values and culture. Effective risk management enables us to both protect the value of our business and to proactively manage threats to the delivery of strategic and operational objectives, while enhancing the realisation of opportunities.                                                                                                      

Our approach to risk management is flexible to ensure that it remains relevant at all levels of the business, and dynamic to ensure we can be responsive to changing business/macro-economic conditions.                                                           

During FY23, there has been continued focus on the principal risks with oversight of activities and controls to further mitigate these risks. Key risk indicators, introduced in FY22, are monitored to ensure any negative changes are proactively addressed. There continues to be positive progress in risk mitigation activities. We continue to monitor the ongoing broader macro-economic situation and assess the impact that this could have on principal risks for the group, for example:

·	Commercial relationship risk due to potential for increase in payment terms and bad debt;
·	People retention risk as employees look for roles offering higher salaries in reaction to cost of living;
·	Contractual liability risk as clients look to transfer financial exposures to third parties.

Climate change remains an emerging risk for the Group, with an updated assessment of materiality being undertaken during FY23. Where climate change impacts or is impacted by a principal risk, these considerations have been embedded into that risk, ensuring continuous discussion and monitoring. 

The Board has recently agreed that artificial intelligence, as well as being an opportunity, should be monitored as an emerging risk for the Group as the risk has the potential to impact across different areas of the business, strategy and current principal risks. A full assessment of this emerging risk will be completed during FY23 and reported as part of full year risk review.        

Other than the above, the principal risks and uncertainties that the Company expects to be exposed to in the second half of FY23 are substantially the same as those described in the 'Risk management' section of SThree plc Annual Report and Accounts FY22 (pages 106-113). Those principal risks which have changed from FY22 year-end are detailed below. All other principal risks for the Group: Future growth; Contractual liability; People; Talent acquisition and retention; Data privacy; Cyber security; Regulatory compliance, and Health and safety remain unchanged but with positive movement on mitigating activities.     

Risk	Mitigation	Change from FY22 year-end
Macro-economic environment Rapid changes in the macro-economic environment could result in SThree suffering financial exposure and/or loss.	·      Strategically diversified business - geographically, by sector and by product. ·      Strategic focus on STEM markets which are less sensitive to economic cycles. ·      Strategic focus on Contract market which is more resilient in uncertain economic conditions than Permanent and provides a counter-cyclical cash hedge working capital release with each contract finisher. ·      Regular cycle of review of Country business performance, targets and macro-economic risks	Increase in net risk due to external environment.
Strategic change management The inability to effectively manage and implement strategic change, resulting in poorly implemented projects, could lead to wasted resource and/or adverse financial impact and ability to execute strategy impacting future growth or the Group.	·      Priority of investment decisions and approval of business cases through project governance structures. ·      Full Executive Committee and Board oversight of portfolio dashboard showing Red, Amber, Green (RAG) status, timeline, spend and escalation of risks and issues.	Decrease in net risk due to enhanced project oversight structure and governance to ensure continued visibility and discussion of strategic projects.
Commercial relationship SThree may suffer financial loss through bad debt write off or working capital impairment due to inappropriate credit terms agreed when entering into commercial relationship/s with either direct customers or intermediaries if they are unable to fulfil their obligation.	·      Robust payment terms oversight through a credit risk dashboard. ·      Regular review of high-risk customers with risk mitigation steps being managed by our credit risk analysts. ·      Contact review and payment terms escalation process. ·      Workshops with senior business leaders to embed processes and responsibilities.	Increase in gross risk due external macro-economic environment.

 

The materialisation of our principal risks, either separately or in combination, could have an adverse effect on the implementation of our strategic priorities, our business model, financial performance, cash flows, liquidity, shareholder value and other key stakeholders.

Please refer to our FY22 Annual Report and Accounts for further detail on our risks, available at www.sthree.com/en/investors/financial-results/.

 

 

DIRECTORS' RESPONSIBILITY STATEMENT                                     

The Directors confirm that to the best of their knowledge:                                                                                       

a)	the Condensed Consolidated Interim Financial Statements of the Group have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the United Kingdom and give a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidation as a whole for the period ended 31 May 2023 as required by the Disclosure Guidance and Transparency Rules sourcebook of the UK FCA (DTR) 4.2.4R; and
b)	the half-year results announcement includes a fair review of the significant events during the six months ended 31 May 2023 and a description of the principal risks and uncertainties for the remaining six months of the year ending 30 November 2023;
c)	there have been no significant individual related party transactions during the first six months of the financial year; and
d)	there have been no significant changes in the Group's related party relationships from those reported in the FY22 Annual Report and Accounts for SThree plc and its subsidiaries for the year ended 30 November 2022.

The Directors of SThree plc are listed in the SThree plc Annual Report and Accounts for 30 November 2022. A list of the current Directors is maintained on the Group's website www.sthree.com.

The Group's Condensed Consolidated Interim Financial Statements, and related notes, were approved by the Board and authorised for issue on 24 July 2023 and were signed on its behalf by:

                               

 

 

 

 

Timo Lehne                                                           Andrew Beach                                     

Chief Executive Officer                                       Chief Financial Officer                                       

 

24 July 2023

 

 

Condensed consolidated income statement

for the six months ended 31 May 2023

 

 

£'000	Note	(Unaudited) Six months ended 31 May 2023	(Unaudited) Six months ended 31 May 2022
Continuing operations
Revenue	2	825,211	772,249
Cost of sales		(616,620)	(569,196)
Net fees	2	208,591	203,053
Administrative expenses	3	(168,232)	(157,290)
Impairment losses on financial assets		(2,238)	(1,118)
Operating profit		38,121	44,645
Finance income		691	15
Finance costs		(321)	(366)
Profit before income tax		38,491	44,294
Income tax expense	4	(10,816)	(12,314)
Profit for the period attributable to the owners of the Company		27,675	31,980
Earnings per share attributable to shareholders
pence
Total Group
Basic	5	21.0	24.1
Diluted	5	20.4	23.4

 

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 31 May 2023

 

		(Unaudited)	(Unaudited)
		Six months ended	Six months ended
£'000		31 May 2023	31 May 2022
Profit for the period		27,675	31,980
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to income statement
Exchange differences on retranslation of foreign operations		(2,117)	3,018
Other comprehensive (loss)/income for the period (net of tax)		(2,117)	3,018
Total comprehensive income for the period attributable to owners of the Company		25,558	34,998

 

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

Condensed consolidated statement of financial position

as at 31 May 2023

 

				(Unaudited)	(Audited)
				As at	As at
£'000		Note		31 May 2023	30 November 2022
ASSETS
Non-current assets
Property, plant and equipment				30,593	35,249
Intangible assets		6		2,693	846
Deferred tax assets				4,955	4,616
Total non-current assets				38,241	40,711
Current assets
Trade and other receivables				324,216	363,884
Cash and cash equivalents		7		74,186	65,809
Total current assets				398,402	429,693
Total assets				436,643	470,404
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital		8		1,346	1,345
Share premium		8		38,354	38,239
Other reserves				(8,337)	(802)
Retained earnings				166,513	161,610
Total equity				197,876	200,392
Current liabilities
Bank overdraft		7, 10		1,775	423
Trade and other payables				191,374	216,842
Lease liabilities		9		9,463	11,102
Provisions				6,080	7,871
Current tax liabilities				8,123	7,391
Total current liabilities				216,815	243,629
Non- current liabilities
Lease liabilities		9		19,388	22,600
Provisions				2,564	3,783
Total non-current liabilities				21,952	26,383
Total liabilities				238,767	270,012
Total equity and liabilities				436,643	470,404
The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.