REG-SThree SThree: Q3 Trading Update
14/09/2020 07:05
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SThree (STEM)
SThree: Q3 Trading Update
14-Sep-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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14 September 2020
SThree plc
Q3 Trading Update
PERFORMANCE AHEAD OF MANAGEMENT EXPECTATIONS, DRIVEN BY A UNIQUE FOCUS ON
STEM AND FLEXIBLE WORKING
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) covering the period
1 June 2020 to 31 August 2020.
Highlights
• Group net fees for Q3 down 14% YoY, impacted by Covid-19
• Contract net fees demonstrating resilience, down 12%, with Permanent
down 20%
◦ Reduction in the rate of decline in net fees ahead of
Management's expectations
• Contractor order book down 15% (Q2 2020: down 14%) and up 1%
sequentially on Q2
• Contract net fees represents 77% of Group net fees (Q3 2019: 75%)
• 90% of Group net fees generated from international(2) markets (Q3
2019: 88%)
• Strong balance sheet, with net cash at 31 August 2020 increasing to
£39m (31 May 2020: £31m)
• Improving performance driven by increased sales activity, higher
contractor retention rates, and thus a stabilisation of the contractor
order book, coupled with balance sheet strength, has allowed:
◦ Return of staff from furlough, with all previously claimed
furlough support from UK Government to be repaid
◦ Repayment of RCF of £50m
◦ Resumption of Employee Benefit Trust share buy-back programme in
Q4
Mark Dorman, Chief Executive, commented:
"Our strategy and focus on STEM and flexible working has again served us
well in this quarter. We are pleased to have recorded a resilient
performance thanks to the disciplined execution and hard work of our
teams.
Whilst the YoY decline in net fees was marginally greater in Q3 than Q2,
there has been an improving underlying sequential performance in the
business since the half year. We have seen a significant uptick in general
sales activity levels across most regions, improving contractor retention
levels and thus a stabilisation of the contractor order book. These
performance indicators, together with our strong balance sheet, have
allowed us to take a number of positive steps in the period, including the
return of some staff from furlough and the return of the money provided to
us as part of the UK Government's job retention scheme.
Encouragingly, feedback from our clients is becoming more positive, with
78% of responses from our latest client sentiment survey stating they are
actively hiring, with SThree job postings also steadily increasing.
Nevertheless, the outlook in the short term is still uncertain as the
COVID-19 pandemic continues to affect our markets, clients and teams. As a
result of this, our guidance remains suspended.
Our purpose - bringing skilled people together to build the future - has
never been more relevant and we are confident in our core strategy,
positioned between the accelerating secular trends of STEM and flexible
working. Looking further ahead we continue to make targeted investments
and are pushing forwards with our strategic initiatives to drive the Group
towards its long term ambitions. We thank all our teams who are working so
hard to capitalise on current opportunities and building our success."
Q3 2020 Q2 2020 Q1 2020
Net Fees Q3 2020 Q3 2019 YOY YOY YOY
Contract £58.0m £66.0m -12% -11% +2%
Permanent £17.7m £21.8m -20% -17% -6%
GROUP £75.7m £87.8m -14% -12% 0%
Management structure
DACH(3) £25.8m £28.2m -9% -9% +9%
EMEA Exc DACH(4) £27.5m £35.1m -22% -17% -6%
USA £19.6m £20.4m -3% -2% 0%
APAC £2.8m £4.1m -33% -38% -15%
GROUP £75.7m £87.8m -14% -12% 0%
Top 5 countries
Germany £23.6m £26.1m -10% -10% +7%
Netherlands £11.8m £13.4m -13% -12% +3%
UK £7.9m £10.9m -28% -19% -8%
USA £19.6m £20.4m -3% -2% 0%
Japan £1.7m £2.3m -27% -36% -11%
ROW(5) £11.1m £14.7m -26% -21% -8%
GROUP £75.7m £87.8m -14% -12% 0%
Division mix Q3 2020
Contract 77%
Permanent 23%
Sector mix Q3 2020
Technology 45%
Life Sciences 24%
Engineering(6) 23%
Banking & Finance 7%
Other 1%
Business Performance
Group net fees in Q3 declined 14% in the year as performance continues to
be impacted by declines in aggregate demand as a result of the COVID-19
pandemic across all of our territories and sectors. Our Contract business
has shown resilience with net fees down 12% in the quarter, representing
77% of Group net fees. The contractor order book has grown 1% since the
half year as the Group sees increased sales activity levels along with
increased contractor retention levels.
DACH net fees were down 9% in the quarter, a good performance in the
circumstances despite strong prior year comparatives. Our Life Sciences
business has shown resilience with net fees down only 1% with increased
demand in Quality Assurance and Clinical Research & Development. All other
sectors declined in the quarter. Germany, our largest country in the
region, saw net fees decline 10% but has seen its contractor order book
grow 6% since the half year.
EMEA excl DACH saw net fees decline 22% in the quarter, primarily driven
by the UK's challenging performance. The Netherlands, our largest country
in the region, saw net fees decline 13%. Our Technology business in the
Netherlands had a challenging period in line with the overall Netherlands
STEM market, but continued to deliver ahead of the market (7). Our Dutch
Engineering business saw a strong performance with net fees up 27% driven
by demand in Health and Safety, Life Sciences was up 1% and Banking &
Finance up 2%. There has been an increase in sales activity levels in the
Netherlands and we have seen an improvement in the contractor order book,
up 1% since the half year.
The USA is the world's largest STEM staffing market and our USA business
has proven to be particularly resilient with net fees down just 3% in the
quarter, following a decline of only 2% in Q2. This region continues to
demonstrate the benefits of investing in the right vertical niches and
understanding customer needs. Life Sciences continues its strong
performance with net fees up 15% (H1 up 13%) driven by increased
placements in Clinical Operations, Product Development and Quality
Assurance. Technology was up 4% driven by Mobile Applications and
Salesforce placements with Engineering down 1%. Encouragingly, the USA
grew its contractor order book both YoY and since the half year, up 2% and
5% respectively. As a key area of focus for the Group we continue to make
targeted investments in the region, aligning our resources with the best
long-term opportunities.
Our APAC region continues to be impacted strongly from the Covid-19
pandemic with net fees down 33% in the quarter. Japan net fees are down
27% with Technology, our largest sector, down 11%.
In line with one of the Group's strategic pillars, 'to be a leader in the
markets it chooses to serve', the Management team has recently been
engaged in an assessment of which regions represent the best STEM markets
in which SThree has the best possible opportunity to grow and take market
share. Following this assessment, the Group intends to cease trading and
operations in Australia by the end of November, whilst maintaining its
other APAC operations as a key strategic region for the Group.
Group average headcount was down 3% YoY, reflecting a 5% increase in Q1 in
line with our growth strategy, followed by a decline in Q2 and Q3 in
response to the crisis. Sequentially Group period end headcount is down 9%
vs Q2 with USA down 7%, DACH down 8%, EMEA excl DACH down 12% and APAC
down 12%. Group period end headcount was down 14% YoY. We will invest 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.
Operational Update
The Group tracks a number of indicators as to the underlying strength of
the market and demand for our services and is pleased to have recorded an
increase in sales activity levels, in particular in Contract. Group
Contract sales activity in Q3 has improved both sequentially (up 26% vs
Q2) and showing an improving trend YoY (Q3: -20% vs Q2 - 38%), and the
Group has also seen an improvement in contractor retention rates.
These factors, together with the strength of the balance sheet, have
enabled the Group to implement a number of initiatives as the global
economic picture improves. This includes the return of staff from
furlough, with all previously claimed furlough support from UK Government
of £600k to be repaid, and the repayment of the RCF of £50m which was
drawn down at the beginning of the lockdown period but not utilised. The
Group also resumed a modest share buy-back programme to satisfy employee
ownership plans.
In its most recent client sentiment survey there were clear signals of an
increase in recruitment activity levels. For example, 78% of responses
state that they are actively hiring in some way, a significant shift from
an earlier consultant survey, and with 42% saying that hiring levels are
back to pre-COVID levels which we see as another encouraging sign. Despite
all the economic challenges resulting from the pandemic, approximately 50%
of responses to our client survey still stated that "finding the right
talent" is a significant challenge, one that we are well positioned to
address.
Liquidity and dividends
SThree remains in a strong financial position, with net cash at 31 August
2020 of £39m (31 August 2019: Net debt £12m). 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 August 2020 the Group has total accessible liquidity of £144m.
This is made up of £39m net cash, a £50m revolving credit facility
("RCF"), a £5m overdraft and £50m from the CCFF (RCF, overdraft and CCFF
not 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.
We continue to recognise the importance of dividends to our shareholders
and are keeping future dividend payments under active review.
Analyst conference call
SThree is hosting a webinar for analysts and institutional investors today
at 0830 BST to discuss the Q3 Trading Update and to 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 a trading update for the year ended 30 November
2020 on 14 December 2020.
(1) All YoY 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 6% of the new
Engineering sector
(7) Netherlands temporary technical sector market turnover (ABU data P6 to
P8 2020)
- 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.2,700 staff cover the Technology, Life Sciences, Engineering
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.: 84017
EQS News ID: 1130773
End of Announcement EQS News Service
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