REG-SThree SThree: Half Year Trading Update

SThreeAnnouncement

15/06/2020 07:05

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   SThree (STEM)
   SThree: Half Year Trading Update

   15-Jun-2020 / 07:00 GMT/BST
   Dissemination of a Regulatory Announcement that contains inside
   information according to REGULATION (EU) No 596/2014 (MAR), transmitted by
   EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   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."

    

    

    

                                         H1 2020   Q2 2020 Q1 2020
   Net Fees             H1 2020  H1 2019   YOY       YOY     YOY
                                                               
   Contract             £114.6m  £121.1m   -5%      -11%     +2%
   Permanent             £36.6m  £41.9m   -12%      -17%     -6%
   GROUP                 £151.2m £163.0m   -7%      -12%     0%
                                                               
   Management structure                                        
   DACH (3)              £50.1m  £51.2m    -1%       -9%     +9%
   EMEA Exc DACH (4)     £60.6m  £69.2m   -12%      -17%     -6%
   USA                   £35.4m  £35.5m    -1%       -2%     0%
   APAC                   £5.1m   £7.1m   -28%      -38%    -15%
   GROUP                 £151.2m £163.0m   -7%      -12%     0%
                                                               
   Top five countries                                          
   Germany              £46.0m   £47.7m    -2%      -10%     +7%
   Netherlands           £23.2m  £24.7m    -5%      -12%     +3%
   UK                    £18.6m  £21.6m   -14%      -19%     -8%
   USA                   £35.4m  £35.5m    -1%       -2%     0%
   Japan                  £2.8m   £3.6m   -24%      -36%    -11%
   ROW (5)               £25.2m  £29.9m   -14%      -21%     -8%
   GROUP                 £151.2m £163.0m   -7%      -12%     0%
                                                               
   Division mix         H1 2020                                
   Contract               76%                                  
   Permanent              24%                                  
                                                               
   Sector mix           H1 2020                                
   Technology             45%                                  
   Life Sciences          22%                                  
   Engineering (6)        22%                                  
   Banking & Finance       9%                                  
   Other                   2%                                  

    

    

    

   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 -

    

    Enquiries:

                                                            

    
    SThree plc                           020 7268 6000
    Mark Dorman, Chief Executive Officer  
    Alex Smith, Chief Financial Officer   
    Steve Hornbuckle, Company Secretary
                                          
    
                                         020 3405 0205
    Alma PR
                                          
    Rebecca Sanders-Hewett

    Susie Hudson                         SThree@almapr.co.uk

    

    

    

   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.

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   ISIN:          GB00B0KM9T71
   Category Code: TST
   TIDM:          STEM
   LEI Code:      2138003NEBX5VRP3EX50
   Sequence No.:  69653
   EQS News ID:   1069455


    
   End of Announcement EQS News Service

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