SThree: Q3 Trading Update

20 September 2022

SThree plc

Q3 Trading Update

Full year profit performance expected to be ahead of consensus

SThree plc ("SThree" or the "Group"), the only global pure-play specialist staffing business focused on Science, Technology, Engineering and Mathematics (‘STEM’) skills, is pleased to issue a trading update covering the period 1 June 2022 to 31 August 2022.

Highlights                             

• Group net fees for the quarter up 19% YoY(1) against a very strong comparative period, driven by the continued execution of our strategy
• Continued YoY growth in our three largest countries with Germany up 13%, USA up 9%, and Netherlands up 36%, together representing 73% of Group net fees
• Continued strong growth across Technology, up 25% and Engineering, up 25%, with Life Sciences growing 2% against a very strong prior year comparator
• In line with our strategic focus on flexible talent, Contract net fees are up 21%; Permanent net fees up 10%
• Contractor order book(2) up 24% YoY, underpinning continued confidence in our full year performance
• Strong balance sheet with net cash of £57m at 31 August 2022 (31 August 2021: £51m)
• The Board now expects that profit before tax for the 12 months to 30 November 2022 will be at least 7% ahead of market consensus(3)

Timo Lehne, Chief Executive, commented:

“Our Group has delivered another excellent quarter of growth, driven by successes across all key regions and STEM disciplines. As a result of this strong performance, together with contractor order visibility, we are again trading ahead of market expectations for the 2022 full year.

The YoY growth for Q3 builds on the strong performance delivered in the first half of the year. This further period of growth is being driven by our strategic focus on STEM and flexible working, through both independent and employed contractors.

Good progress has also been made in the execution of our wider strategy, with the investment in our people, talent acquisition and digital infrastructure moving forward as planned. This investment is designed to underpin our long-term success, with costs starting to be incurred in Q3 as previously indicated.

Whilst we remain mindful of the macro-economic uncertainty across global markets, with all developments and lead indicators of the Group’s performance monitored closely, our strong market position underpins our confidence in the medium to long-term future of the Group.”  

Business performance highlights

The Group delivered a strong performance in the quarter with net fees up 19% YoY; our Contract and Permanent businesses were up 21% and 10% YoY respectively.

Contract

• Another strong quarter of net fee growth, up 21% YoY, the 6th quarter in a row of double-digit growth.

• Regionally, DACH was up 18% YoY, EMEA excl. DACH up 27%, USA up 16% and APAC up 41%.
• Strong growth in Technology up 27% YoY and Engineering up 25%, with a more modest growth in Life Sciences up 7%.

• The contractor order book was up 24% YoY (Q3 2021: up 41%), reflecting the strong demand for skilled contractors that we have seen across our markets.

Permanent

• Permanent net fee income for the quarter was up 10% YoY.
  • DACH, our largest Permanent market, delivered net fee growth of 11% YoY. EMEA excl. DACH reported very strong growth of 24% YoY with USA down 10% and APAC was up 40%.
  • Strong growth in Technology up 17% and Engineering up 27% YoY. Life Sciences was down 13% YoY reflecting very strong prior year comparators.

Headcount and productivity

• Group average headcount in the quarter was up 13% YoY, with period-end headcount up 13% YoY.
• Sequentially, Group period-end headcount was up 4% vs Q2 2022 and up 8% vs the FY21 year-end position.
• Our investment in talent acquisition remains in line with our strategy of focusing on Contract, hiring consultants within specific niches in our chosen sectors and markets.
• Productivity continues to be at exceptional levels, up 5% YoY in Q3, reflecting strong net fee growth and headcount that remains below the pre-pandemic peak in FY19. As previously guided, we expect productivity to remain above pre-pandemic levels, though it will reduce from the current exceptional levels over time, as the Group’s headcount grows. 

Regional highlights

DACH delivered another strong quarter of performance in Q3 with net fees up 16% YoY.

• Germany, which accounts for 88% of DACH net fees, saw net fee growth of 13% driven by:
  • Technology up 21% with higher demand for roles within Infrastructure, Cyber Security, Leadership and Strategic positions.
  • Engineering up 13%, due to demand for Construction roles.
• Very strong growth in Austria up 61% and Switzerland up 42%.

EMEA excl. DACH saw very strong net fee growth in the quarter, up 26% YoY.

• The Netherlands, our largest country in the region (47% of net fees), saw a very strong performance with net fees up 36%, driven by:
  • Engineering up 34% with increased demand for Process and Electrical Engineers.
  • Technology up 39%, driven by higher demand for Project Managers, ERP Consultants and Data Scientists.
• The UK’s recent strong performance has continued with net fee growth of 25% YoY. This was driven by Technology up 30%, as demand increased for IT Leadership and Strategy roles, Software Developers, Software Engineers and Testing roles.

USA saw Q3 net fees grow 9% YoY.

• Strong growth in Contract, up 16%. Permanent was down 10% following our strategic focus on Contract and very strong prior year comparatives, when Life Sciences was the standout performer due to particularly high demand from Covid-19 related activity.
• Engineering up 37%, with a particular focus on roles within Electrical Engineering and Project Management.
• Technology up 15%, driven by increased demand for roles within Adobe, Microsoft.Net Developers, Mobile Applications and Infrastructure.

APAC saw very strong net fee growth in the quarter, up 40% YoY.

• Japan, which accounts for 67% of APAC net fees, saw net fees grow by 44%.
• Growth was driven by Technology up 30%, with demand for Business Analysts, Application Specialists and Infrastructure roles. 

Balance sheet

In July 2022, the Group entered into a new £50m three-year revolving credit facility (‘RCF’) agreement to refinance the existing £50m facility that was due to mature in May 2023. The RCF key terms and conditions remained largely unchanged, and extends the Group’s credit maturity profile to 2025, with extension options to 2027, and reinforces our strong financial position.

As at 31 August 2022, the Group had total accessible liquidity of £112m. This comprised £57m net cash (31 August 2021: £51m; 30 November 2021: £58m), a £50m RCF and a £5m overdraft facility (RCF and overdraft both undrawn). In addition, SThree has a £20m accordion facility as well as a substantial working capital position, reflecting net cash due to SThree for placements already undertaken.

Analyst conference call

SThree is hosting a conference call for analysts and investors today at 8.00am to discuss the Q3 2022 trading update. If you would like to register for the conference call, please contact SThree@almapr.co.uk.

The Group plans to issue a trading update for the year ending 30 November 2022 on 14 December 2022.

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

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

(3)  Current consensus PBT expectation is £71.2m for FY22. Source: SThree compiled consensus.

(4)  DACH - Germany, Austria and Switzerland.

(5)  EMEA excl. DACH - UK, Ireland, Belgium, Netherlands, Luxembourg, France, Spain and Dubai.

(6)  ROW - All other countries we operate in.

- Ends -

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (Regulation (EU) No.596/2014) as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018.

Notes to editors

SThree plc brings skilled people together to build the future. We are the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics (‘STEM’), providing permanent and flexible contract talent to a diverse base of over 8,000 clients across 14 countries. Our Group’s c.2,900 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.