15 June 2020

SThree plc

Half Year Trading Update

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(1) for the half year ended 31 May 2020.

Highlights                             

• Group net fees for H1 down 7% in the year, with Q2 down 12%, impacted by Covid-19
• Contract showing resilience with H1 net fees down 5% (Q2 down 11%), representing 76% of Group net fees (H1 2019: 74%)
• 88% of Group net fees generated from international(2) markets (H1 2019: 87%)
• Strong balance sheet, with net cash at 31 May 2020 increased to £31m (29 Feb 2020: £9m)

Mark Dorman, Chief Executive, commented:

"The first half results are a combination of a robust first quarter, with a number of key markets delivering strong growth, and a second quarter defined by a global health pandemic and the economic impacts of government responses to it.

"In what has been a difficult period for our teams, both personally and professionally, their dedication and spirit has enabled us to continue to deliver on our purpose to bring skilled people together to build the future.  We have seen clients reassess their talent mix and the support they need in managing that talent during the period, with particular demand for STEM skills as they all navigate the current environment. There is a focus on flexible working, reskilling and the need to hire from as diverse a pool of candidates as possible to fill critical talent gaps. By navigating this complex and fast-changing environment we have ultimately delivered a resilient performance.

"Whilst lockdowns are currently being eased to differing extents globally, we still see heightened uncertainty continuing for some time. As such our guidance remains withdrawn. However, we have demonstrated that our business is agile and able to adapt. 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."

Business performance

The Group's robust performance in Q1 was outweighed by the impact of the COVID-19 pandemic in Q2 across all of our territories and sectors. As communicated in our announcement of 20 May 2020, aggregate demand for staffing in the period has been significantly less than what would normally be expected, with notable spikes and troughs across different markets and industries in the short term. As such, following a flat Q1, Group net fees in Q2 declined 12%, with Contract, which accounts for 76% of Group net fees, delivering a more resilient performance across both quarters as would be expected given the nature of the model.

DACH delivered a solid performance, grounded by significant growth in Q1, followed by a decline in Q2 due to Covid-19 impact and against a particularly strong comparator in the prior year. Technology in H1 was up 1% with a strong Q1 and Q2 slightly down (6%), with strong performance in Infrastructure and Software Development. Life Sciences, after an exceptionally strong Q1, saw Q2 decline 6% as the pandemic impacted some clients' ability to run clinical trials and manufacture drugs.

The results for EMEA excluding DACH largely reflected the UK's challenging performance. The Netherlands, our largest country in the region, delivered a resilient performance in H1 with net fees declining 5%, albeit with a 12% decline in Q2. Notable performances were delivered in Life Sciences, up 10% (Q2 flat) driven by increased placements across Quality Assurance and Medical Devices, and across Engineering, with our particular focus on Manufacturing, High Tech and Chemicals.

Our US business showed its resilience across both quarters, with strong growth across Life Sciences up 13% (Q2 up 11%) and Technology up 4% (Q2 up 5%). The USA is a good example of the importance of investing in the right vertical niches and understanding customer needs. Thanks to a keen focus on this strategy the region benefitted from increased activity in Quality Assurance, as more new drugs were manufactured, and seen good growth in tech skills that support digital transformation such as Mobile Applications and Software Development, in line with the changing customer needs. As a key area of focus for the Group we have continued to invest in the region and are aligning our resources with the best long-term opportunities. 

APAC net fees declined in the half year as the region was impacted by both the Australian wildfires and the earlier impact of Covid-19. Japan was down 24% (Q2 down 36%) in the first half with our largest sector, Technology, down 4% (Q2 down 35%) due to this business being focused on Permanent and a decline in   demand for skills in Advertising & Digital media, Tech consulting & implementation and Enterprise Technology.

Group average headcount was up 2% YoY, reflecting a 5% increase in Q1 in line with our growth strategy, followed by a decline in Q2 in response to the crisis. There were also marked differences by region in line with our previously stated strategy to focus on specific niches within sectors and markets where we can gain valuable market share and cement our position. This was reflected in YoY period end headcount up 3% in the US, up 1% in DACH, down 13% in EMEA excluding DACH and down 19% in APAC. Group headcount was down 5% sequentially Q2 vs Q1.

Balancing the current economic headwinds with the acceleration of the long term secular trends of STEM and flexible working, we are implementing programmes to rightsize our cost base, whilst continuing to make targeted investments and bolstering the strength of our core platform. The combination of these factors with the impact of the pandemic will result in a short term decrease in our operating leverage, with a resulting impact on our profitability compared to the same period last year.

Liquidity

SThree remains in a strong financial position, with net cash at 31 May 2020 of £31m (31 May 2019: Net debt £8m). The Group has a £50m revolving credit facility ("RCF") with HSBC and Citibank, which is committed to 2023. The Group is also eligible to funding under the Bank of England's Covid Corporate Financing Facility ("CCFF") of £50m.

As at 31 May 2020 the Group has total accessible liquidity of £136m. This is made up of £31m net cash, a £50m revolving credit facility ("RCF"), which has now been fully drawn down, a £5m overdraft and £50m from the CCFF (both not yet drawn down). 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.

During Q2 we took strong action to mitigate the potential impact of the crisis on our ability to collect amounts due from our clients by reallocating headcount to the Glasgow collections team and enhancing our credit risk processes and systems in an agile fashion. The result was an in quarter reduction in our Days Sales Outstanding to 42 days (Q1: 45 days).

Analyst conference call

SThree is hosting a webinar for analysts and institutional investors today at 0830 BST to discuss the H1 Trading Update and present the Group's STEM staffing market pulse check.

If you would like to listen to the webinar please contact SThree@almapr.co.uk

The Group plans to issue its interim results for the six months ended 31 May 2020 on 20 July 2020.

(1) All year-on-year financial growth rates in this announcement are expressed at constant currency

(2) International represents our businesses outside the UK

(3) DACH - Germany, Austria and Switzerland

(4) EMEA excl 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

(6) Engineering now includes Energy, which was previously reported separately. Up-stream oil and gas comprises approximately 7% of the new Engineering sector

- 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 16 countries.

The Group's c. 3,000 staff cover the Technology, Engineering and Life Sciences and Banking & Finance sectors.

SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STEM and also has a US 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. 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.