13 September 2021

SThree plc

Q3 Trading Update

Full year profit performance expected to be significantly ahead of consensus

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 June 2021 to 31 August 2021.

Highlights

• Group net fees for Q3 up 29% YoY(1)
• Very strong growth in our three largest countries: Germany up 35%, USA up 31% and Netherlands up 24%
• Top five countries represent 87% of Group net fees, with Germany representing 33% and USA 26% 
• Contract and Permanent net fees up 27% and 36% YoY, respectively
• Contract net fees represents 76% of Group net fees (Q3 2020: 77%)
• Contractor order book(2) up 41% YoY (H1 2021: up 33%)
• Strong balance sheet, with net cash at 31 August 2021 of circa £51m (31 August 2020: £39m; 31 May 2021: £48m)
• The Board now expects that profit before tax for the 12 months to 30 November 2021 will be significantly above market consensus*, driven primarily by the timing of the planned increase in investment shifting from H2 FY21 to FY22 and beyond, and the Group's strong trading performance.

As Q3 2020 was the quarter most significantly impacted by Covid-19, the Group has also provided comparisons against Q3 2019 in the table below.

The growth in 2021 vs 2019 demonstrates the very strong underlying performance of the Group and the relevance of its differentiated, STEM-focused offering. Highlights vs 2019 include:

• Q3 net fees up 11%
• Germany net fees up 22%, USA up 28% and Netherlands up 8%
• Contractor order book up 20%

*Current consensus Analyst PBT expectations are £51.4m. Source: SThree compiled consensus

Mark Dorman, Chief Executive, commented:

"The momentum in our performance from the start of the financial year has continued through the third quarter with net fees up 11% on 2019. Our strategy, positioned at the centre of the secular trends of STEM and flexible working, alongside a strengthening staffing market, has contributed to this strong performance.

The planned acceleration of investment into our people, talent acquisition, infrastructure and go-to-market proposition to drive long term sustainable growth will gather pace through the remainder of the financial year but the full effect is now likely to be felt in FY22. This, together with the strong net fees performance delivered in the quarter, and the impact of a potential return to more normal working and annual leave patterns not having been felt as yet, means that we now anticipate being significantly ahead of consensus profit expectations for the full year, following the upwards revision provided in June 2021.

Our rigorous focus on strategic execution has not wavered and we remain fully committed to the ongoing delivery of our long-term ambitions for all of our stakeholders, whatever the external circumstances."

Business Performance highlights

The Group's strong performance has continued into Q3 with net fees up 29% YoY.

Contract

• Growth in contract net fee income accelerated in Q3 and was up 27%
• Our contractor order book(2) was up 41% YoY, reflecting the ongoing high demand for skilled contractors across our markets and underpinning our positive outlook

Permanent

• Permanent net fee income was up 36%, maintaining the strong growth seen in the second quarter
• DACH and USA, our two largest Permanent regions, were up 21% and 80%, respectively

Headcount and Productivity:

• Group average headcount was down 7% YoY with period end headcount down 2%
• Sequentially, Group period end headcount is up 3% vs Q2 2021
• We continue to invest in line with our previously stated strategy of focusing on specific niches within sectors and markets where we can gain valuable market share, with investment in people a priority for the business. We expect to deliver further sequential growth in headcount in Q4, and plan continued acceleration into FY22
• Q3 Productivity is up by 38% YoY. We expect this to revert, but to remain higher than historic levels

Regional highlights:

DACH delivered another strong quarter of performance in Q3 with net fees up 35% YoY

• Germany, our largest country in the region, saw very strong net fee growth of 35%
• Technology up 43%, driven by Software Development, Infrastructure and ERP
• Life Sciences up 33%, with increased demand in Quality Assurance and Clinical Research & Operations

EMEA ex DACH saw net fees grow 21% YoY

• The Netherlands, our largest country in the region, continued its strong performance into Q3 with net fees up 24%
• The UK's net fees were also up 24%, with Technology up 30%
• Technology up 26% in the Netherlands, a particularly strong performance driven by demand in Software Development and Application Management & Support
• Life Sciences up 17% in the Netherlands with increased demand in Quality Assurance and Engineering up 23% with particular focus on Project Management and Electrical Engineering

USA, home to the world's largest STEM staffing market, recorded a very strong performance in Q3, up 31% YoY

• Technology was up 44% driven by Adobe, Mobile Applications and Salesforce
• Life Sciences, our largest sector in the USA, continues its strong performance with net fees up 28% YoY driven by increased placements in Quality Assurance and Clinical Operations
• Engineering up 10%, driven by increased demand in Project Management

APAC net fees were up 33% YoY

• Japan, our largest country in the region, saw net fees grow 23%
• Technology up 22% in Japan, with Life Sciences up 31%

Balance sheet

SThree remains in a strong financial position, with net cash at 31 August 2021 of circa £51m (31 August 2020: net cash £39m). As at 31 August 2021 the Group has total accessible liquidity of £106m. This is comprised of £51m net cash, a £50m revolving credit facility ("RCF") and a £5m overdraft facility (RCF and overdraft fully undrawn). In addition, SThree has a £20m 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 webinar for analysts and investors today at 0830am to discuss the Q3 Trading Update.

If you would like to register for the webinar please follow this link: https://bit.ly/STEM_Q3_TUwebinar

The Group plans to issue a trading update for the year ended 30 November 2021 on 13 December 2021.

(1)  All YoY growth rates in this announcement are Q3 2021 versus Q3 2020, expressed at constant currency and exclude Australia, which we exited in Q4 2020

(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) EMEA ex DACH - UK, Ireland, Belgium, Netherlands, Luxembourg, France, Spain and Dubai

(5) ROW - All other countries we operate in excluding Germany, Netherlands, UK, USA and Japan

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.

- Ends -

Notes to editors

SThree plc brings skilled people together to build the future.  It is 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 9,000 clients in 14 countries.

The Group's c.2,600 staff cover the Technology, Life Sciences, Engineering and Banking & Finance sectors.

SThree plc is quoted on the Premium Segment of the Official List of the Financial Conduct Authority under the ticker symbol 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.