SThree: FY23 Q1 Trading Update (1587317)

SThree (STEM) SThree: FY23 Q1 Trading Update 21-March-2023 / 07:00 GMT/BST

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21 March 2023

SThree plc

FY23 Q1 Trading Update

Net fee growth 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 issues a trading update covering the period 1 December 2022 to 28 February 2023.

Highlights

-- Group net fees for the quarter up 4% YoY(1), in line with expectations.

-- Contract net fees up 8% YoY with growth across all regions, with Contract now representing 81% of Groupnet fees (Q1 2022: 77%, Q4 2022: 78%).

-- Permanent net fees down 12% YoY, reflecting market conditions, performance in USA and Life Sciences, andthe planned transition from Permanent to Contract in several markets.

-- In our largest three markets, which represent 73% of net fees, Germany and the Netherlands grew 7% and 4%respectively, while USA was down 6%.

-- Technology up 8% and Engineering up 19%, while Life Sciences was down 15%.

-- Contractor order book (2) up 5% YoY (Q4 2022: up 19% YoY).

-- Robust balance sheet, with GBP64 million net cash as at 28 February 2023 (28 February 2022: GBP41 million, 30November 2022: GBP65 million).

Timo Lehne, Chief Executive, commented:

"The Group has delivered a robust net fee performance in the first quarter of FY23 with fees up 4% YoY, in line with expectations, and supported by the strength of our well-established strategy, focused on STEM and flexible talent. The macro-economic environment remains uncertain, and we continue to see varied effects across our markets impacting new placements, offset by strong Contract extensions. Our Contractor Order Book underpins our near term visibility and continues to be a source of strength for the business, with Contract now representing 81% of Group net fees.

We have continued to make progress against our clear strategy which is centred on an analytical and fact-based approach of knowing where to play and playing where we can win. Our targeted investment in talent and digital infrastructure is progressing as planned, positioning the Group to scale with sustainable margins, in line with our 2024 ambitions.

Our long-term opportunity is unchanged, underpinned by structural megatrends which drive the acute need for scarce STEM talent. We are closely monitoring lead indicators across our markets as we navigate challenging macro conditions. Supported by a resilient business model and robust financial position, we remain well positioned to source and place the best STEM talent the world needs."

Reporting structure change

SThree has changed its reporting structure, as shown in the tables below. Going forward, SThree will apply the new groupings of DACH, Netherlands (including Spain, which is managed from the Netherlands), Rest of Europe, USA and Middle East & Asia, as well as continuing to present the net fees of its five key markets: Germany, Netherlands, USA, UK and Japan. A table with the historical reporting structure is provided in the appendix.

                              Q1      Q1       Q1 2023   Q4 2022 Q3 2022 Q2 2022 Q1 2022 
Net fees                      2023    2022     YoY (1)   YoY (1) YoY (1) YoY (1) YoY (1) 
Contract                      GBP82.7m  GBP72.3m   +8%       +14%    +21%    +29%    +32% 
Permanent                     GBP19.9m  GBP21.5m   -12%      -5%     +10%    +5%     +18% 
GROUP                         GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Regions 
DACH (3)                      GBP36.8m  GBP32.6m   +8%       +5%     +16%    +23%    +26% 
Netherlands (incl. Spain) (4) GBP18.7m  GBP16.9m   +6%       +21%    +36%    +38%    +45% 
Rest of Europe (5)            GBP17.5m  GBP16.5m   +4%       +9%     +16%    +17%    +17% 
USA                           GBP24.3m  GBP23.5m   -6%       +3%     +9%     +16%    +27% 
Middle East & Asia (6)        GBP5.3m   GBP4.3m    +19%      +31%    +45%    +31%    +54% 
GROUP                         GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Top five countries 
Germany                       GBP32.7m  GBP29.3m   +7%       +3%     +13%    +20%    +24% 
Netherlands                   GBP17.9m  GBP16.3m   +4%       +21%    +36%    +38%    +45% 
UK                            GBP10.8m  GBP10.2m   +6%       +14%    +25%    +28%    +29% 
USA                           GBP24.3m  GBP23.5m   -6%       +3%     +9%     +16%    +27% 
Japan                         GBP2.1m   GBP2.0m    +7%       +55%    +44%    +25%    +78% 
ROW (7)                       GBP14.8m  GBP12.5m   +12%      +12%    +23%    +21%    +19% 
Group                         GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Service mix                   Q1 2023  Q1 2022 
Contract                      81%     77% 
Permanent                     19%      23% 
 
Skills mix                    Q1 2023 Q1 2022 
Technology                    49%      47% 
Life Sciences                 19%      23% 
Engineering                   24%      21% 
Other                         8%       9% 
 

Business performance highlights

The Group delivered a robust net fee performance in the quarter, up 4% YoY. Overall, our Contract business was up 8% and Permanent business was down 12%, reflecting the USA and Life Sciences performance, and the strategic transition from Permanent to Contract in several markets. Contract, our strategic focus, now represents 81% of net fees.

Contract

-- 8th consecutive quarter of growth with net fees up 8% YoY. ? Growth across all regions: DACH was up 6% YoY, Netherlands up 9%, Rest of Europe up 11%, USA up 4% andMiddle East & Asia up 70%. ? Strong growth in Technology, up 9% YoY, and Engineering, up 23%, with Life Sciences down 8% reflectingsofter market conditions against a strong comparator period in Q1 FY22.

-- The contractor order book was up 5% YoY (Q4 2022: up 19%).

Permanent

-- Permanent net fees for the first quarter were down 12% YoY, reflecting market conditions, recent officerestructures and the strategic acceleration of our transition from Permanent to Contract in several markets.? Robust growth in DACH up 11%. All other regions saw net fees decline in the first quarter. ? Technology was up 5% with Engineering down 6% and Life Sciences down 39%, reflecting a combination ofthe softer market conditions against a strong comparator period, together with the transition towards Contract.

Headcount and productivity

-- Group period-end headcount was down 4% vs Q4 2022, though this movement included reductions related tothe restructure of the Singapore, Hong Kong and Ireland businesses. On a like-for-like basis, Group period-endheadcount was down 2% vs Q4 2022.

-- Group average headcount in the quarter was up 9% YoY.

-- We continue to invest in line with our previously stated strategy of focusing on specific niches withinsectors and markets where we can gain valuable market share. While we are managing costs tightly, a highlydisciplined and targeted investment in talent acquisition within Contract remains a priority for the business,maintaining the ability to take advantage when trading conditions improve.

-- As expected, and as previously communicated, we have seen some normalisation of productivity as new hirescome on board and net fee growth rates normalise, with Q1 productivity down 5% YoY.

Regional highlights

DACH saw net fees grow 8% YoY

-- Growth in Contract and Permanent up 6% and 11% YoY, respectively.

-- Germany, our largest country in the region, delivered net fee growth of 7% driven by:? Technology up 11% due to demand for roles within Cyber Security and Software Development. ? Engineering up 21%, with higher demand for Construction roles.

Netherlands region saw net fees grow 6% YoY

-- The Netherlands, which represents 95% of net fees for the region, saw net fee growth of 4% YoY driven by:? Technology up 6% with increased demand for Project Managers, ERP Consultants, Data Engineers and DataScience roles. ? Engineering up 2% due to demand for Process Engineers, Electrical Engineers and Health & SafetyAdvisors.

Rest of Europe saw net fees grow 4% YoY.

-- Contract, which represents 94% of net fees for the region, grew 11% YoY, which more than offset the 45%decrease in Permanent net fees, due to both market conditions and the transition towards Contract, particularly inthe UK.

-- The UK, our largest country in the region, saw net fee growth of 6%, driven by:? Technology up 7%, as demand increased for Software Engineers and roles within Digital Transformation.

USA saw net fees decline 6% YoY

-- Contract business, which now represents 85% of net fees, was up 4% YoY driven by:? Engineering up 29%, with increased demand for roles within Project Management, Electrical andMechanical Engineering.

-- Permanent, which represents 15% of net fees, declined 40% YoY driven by Life Sciences as we face verystrong prior year comparatives in addition to the accelerated transition towards Contract.

Middle East and Asia saw net fees grow 19% YoY.

-- Japan, which represents 39% of the region, was up 7% YoY driven by Life Sciences due to increased demandfor roles within Pharmaceuticals & Biotechnology.

-- Strong performance in UAE with net fees up 67% driven by Engineering.

Balance sheet

SThree remains in a robust financial position, with net cash at 28 February 2023 of GBP64m (28 February 2022: net cash GBP41m, 30 November 2022: net cash GBP65m). Total accessible liquidity of GBP119m comprises GBP64m net cash, a GBP50m revolving credit facility ('RCF'), which runs until 2025 (with options to extend it until 2027), and a GBP5m overdraft facility (RCF and overdraft fully undrawn). In addition, SThree has a GBP20m accordion facility as well as a substantial working capital position, reflecting net cash due to the Group for placements already undertaken.

Analyst conference call

SThree is hosting a conference call for analysts and investors today at 8.30am to discuss the FY23 Q1 trading update. If you would like to register for the conference call, please contact [e-mail].

The Group will issue its trading update for the six months ending 31 May 2023 on 20 June 2023.

(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) DACH - Germany, Austria and Switzerland.

(4) Netherlands (incl. Spain) - Netherlands and Spain, which is managed from the Netherlands.

(5) Rest of Europe - UK, Belgium, France, Luxembourg and Ireland.

(6) Middle East & Asia - Japan, UAE & Singapore.

(7) 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.

 
 
 
Enquiries: 
 
SThree plc 
Timo Lehne, CEO 
Andrew Beach, CFO 
                    via Alma 
 
 
                   [phone] 
Alma PR 
 
Hilary Buchanan 
Sam Modlin         [e-mail] 
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 Science, Technology, Engineering and Mathematics ('STEM'), providing permanent and flexible contract talent to a diverse base of over 8,200 clients across 14 countries. Our Group's c.3,000 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.

Appendix

                     Q1      Q1       Q1 2023   Q4 2022 Q3 2022 Q2 2022 Q1 2022 
Net fees             2023    2022     YoY (1)   YoY (1) YoY (1) YoY (1) YoY (1) 
Contract             GBP82.7m  GBP72.3m   +8%       +14%    +21%    +29%    +32% 
Permanent            GBP19.9m  GBP21.5m   -12%      -5%     +10%    +5%     +18% 
GROUP                GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Management Structure 
DACH                 GBP36.8m  GBP32.6m   +8%       +5%     +16%    +23%    +26% 
EMEA excl. DACH      GBP38.8m  GBP34.9m   +8%       +15%    +26%    +26%    +29% 
USA                  GBP24.3m  GBP23.5m   -6%       +3%     +9%     +16%    +27% 
APAC                 GBP2.7m   GBP2.8m    -4%       +36%    +40%    +32%    +71% 
GROUP                GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Top five countries 
Germany              GBP32.7m  GBP29.3m   +7%       +3%     +13%    +20%    +24% 
Netherlands          GBP17.9m  GBP16.3m   +4%       +21%    +36%    +38%    +45% 
UK                   GBP10.8m  GBP10.2m   +6%       +14%    +25%    +28%    +29% 
USA                  GBP24.3m  GBP23.5m   -6%       +3%     +9%     +16%    +27% 
Japan                GBP2.1m   GBP2.0m    +7%       +55%    +44%    +25%    +78% 
ROW                  GBP14.8m  GBP12.5m   +12%      +12%    +23%    +21%    +19% 
Group                GBP102.6m GBP93.8m   +4%       +9%     +19%    +23%    +29% 
 
Service mix          Q1 2023  Q1 2022 
Contract             81%      77% 
Permanent            19%      23% 
 
Skills mix           Q1 2023 Q1 2022 
Technology           49%      47% 
Life Sciences        19%      23% 
Engineering          24%      21% 
Other                8%       9% 
 

----------------------------------------------------------------------------------------------------------------------- Dissemination of a Regulatory Announcement that contains inside information in accordance with the Market Abuse Regulation (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.

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ISIN:          GB00B0KM9T71 
Category Code: QRF 
TIDM:          STEM 
LEI Code:      2138003NEBX5VRP3EX50 
Sequence No.:  231212 
EQS News ID:   1587317 
 
End of Announcement  EQS News Service 
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March 21, 2023 03:00 ET (07:00 GMT)