Sthree Plc · LSE:STEM
Sthree — FY2023 Earnings Presentation
75 slides from Sthree's earnings presentation, January 2024
Slide 1: Full Year Results 2023
Full Year Results 2023 Presentation for the full year ended 30 November 2023 Timo Lehne, CEO Andrew Beach, CFO STHREE.COM
Slide 2: We are SThree. The global STEM-specialist talent partner
We are SThree. The global STEM-specialist talent partner. We are unique. STHREE.COM 2
Slide 3: Our unique model underpins our success driven by global megatrends
STHREE INVESTOR PRESENTATION Our unique model underpins our success driven by global megatrends STEM M 8% S Flexible 18% talent 18% E 37% 26% 82% Technology Contract Employed Contractor (ECM) Life Sciences Independent Contractor Engineering Total Contract Other 48% 45% Permanent T Note 1: Business m
Slide 4: Robust performance against challenging macro-economic environment
STHREE INVESTOR PRESENTATION Robust performance against challenging macro-economic environment Resilient performance against tough comparatives Equivalent of c.4 months’ Net Fees booked Net Fees Contractor order book £418.8m £183.5m down 4% vs FY22 Down 3% vs Nov 2022 FY22 up +19% vs FY21 Continued
Slide 5: Financial review
Financial review STHREE.COM
Slide 6: Net Fees down against a record prior year
FINANCIAL REVIEW Net Fees down against a record prior year performance and challenging global macro-economic backdrop Operating profit conversion ratio reflects normalising productivity and tight cost control Net Fees Operating profit and OPCR FY23 £418.8m FY23 £76.4m 18.2% Post - Covid FY22 £430.6m
Slide 7: Strategic focus on STEM and flexible talent drives our performance
FINANCIAL REVIEW Strategic focus on STEM and flexible talent drives our performance SThree vs UK-listed staffers – Net Fees (indexed to 100) 133% 118% 120% 100% 108% 86% 61% CY Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec SThree 82% 18% 2019 CY20 CY20 CY20 CY20 CY21 CY21 CY21 CY21
Slide 8: Operating profit includes strategic investments for future growth
FINANCIAL REVIEW Operating profit includes strategic investments for future growth Actual LFL FY23 FY22 movement movement Revenue £1,663.2m £1,639.4m +1% flat Net Fees £418.8m £430.6m -3% -4% Operating profit £76.4m £77.6m -2% -5% Conversion ratio 18.2% 18.0% +0.2%pts -0.1%pts Profit before tax £77.
Slide 9: Net Fees from a well-balanced business
FINANCIAL REVIEW Net Fees from a well-balanced business Strong growth in Engineering offset by a decline in Life Sciences in line with global market trends Regions Skills Net Fees by region FY23 vs FY22 DACH -3% 5% 8% Netherlands & Spain +6% 5% 9% Rest of Europe -4% 23% 36% USA -14% 26% 35% 26% 22%
Slide 10: Employed contractor model continues to provide platform for future growth
FINANCIAL REVIEW Employed contractor model continues to provide platform for future growth ECM Net Fees grew 3% YOY FY19 (pre-pandemic) FY22 FY23 22% 18% 26% 23% 35% 37% 74% 78% 82% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 45% Total Contract 43% 51% Permanent Note
Slide 11: FY23 productivity remains elevated
FINANCIAL REVIEW FY23 productivity remains elevated Down slightly compared to exceptional levels in FY22, though remains 34% above pre-pandemic levels in FY19 Productivity Productivity reflects: • Uncertain macro-economic -2% vs FY2022 environment impacting new placement activity, especially in Life
Slide 12: Technology Improvement Programme within Budget
FINANCIAL REVIEW Technology Improvement Programme within Budget Update to phasing of expense recognition without impacting delivery Total expenditure £30m - £35m £13m - £18m FY23 FY22 £7m- £10m £10m Underlying OP (pre-TIP) £80.2m £81.6m Underlying OPCR 19.2% 19.0% £6m TIP Opex £3.8m £4.1m £6m- Repor
Slide 13: Operating profit impacted by Net Fees with tight cost control
FINANCIAL REVIEW Operating profit impacted by Net Fees with tight cost control £9.3m (£21.1m) £77.6m £11.6m (£0.9m) £76.4m Operating Contract Permanent People Other Operating profit FY22 Net Fees Net Fees costs operating profit FY23 costs STHREE.COM 13
Slide 14: Contractor order book provides sector-leading visibility
FINANCIAL REVIEW Contractor order book provides sector-leading visibility Despite being down, continues to provide a robust platform for the year ahead £189.1m £183.5m -3% vs 2022 £159.1m Nov 2020 Nov 2021 Nov 2022 Nov 2021 Nov 2022 Nov 2023 Note 1: Contractor order book represents value of Net Fees
Slide 15: Contract performance driven by robust contract extensions
FINANCIAL REVIEW Contract performance driven by robust contract extensions Net Fees up 1% YoY Contract length Pricing holding up Salaries continue increasing to rise Average Contract length Contract margin Average Contract salary 49 weeks 21.7% £100k up 18% vs FY22 flat vs FY22 up 4% vs November 202
Slide 16: Strong cash performance
FINANCIAL REVIEW Strong cash performance Year end cash position up 27% £14.8m £2.1m (£17.3m) £76.4m (£23.1m) (£35.1m) Decrease in trade debtors/acc income £10.0m Decrease in trade creditors/accruals/provisions/other (£7.9m) £83.2m £65.4m Net cash Operating Non-cash Working Tax/bank Lease Shares, div
Slide 17: Capital allocation policy
FINANCIAL REVIEW Capital allocation policy Highly disciplined with core objective to maximise shareholder value Maintain a strong balance sheet and sustainable, through-the-cycle dividend Investing in our people, ensuring sufficient working capital on hand to fund Organic growth growth of the contra
Slide 18: Capital allocation policy
FINANCIAL REVIEW Capital allocation policy What this means in practice Maintain strong balance sheet of cash alongside flexible debt facilities Maintaining sufficient funding for contractor and headcount growth when Organic growth the cycle turns and the development of new digital products and servi
Slide 19: Full year dividend up 4%
FINANCIAL REVIEW Full year dividend up 4% FY23 EPS FY23 DPS FY23 Dividend cover 42.4p 16.6p 2.6x FY22: 41.0p FY22: 16.0p FY22: 2.6x +4% +4% vs FY2022 vs FY2022 Aligns with our current dividend policy of cover in the range of 2.5x to 3.0x STHREE.COM 19
Slide 20: Key financial takeaways
FINANCIAL REVIEW Key financial takeaways Delivered a consistently robust performance within a challenging macro-economic environment Resilient Net Fee Profits reflect strategic Good visibility of Strong balance sheet performance investments to deliver future Net Fees to fund our ambitions future gro
Slide 21: Strategic progress and outlook
Strategic progress and outlook STHREE.COM
Slide 22: Our strategic pillars
STRATEGIC PROGRESS AND OUTLOOK Our strategic pillars Our Places Our Platform Our People Our Position To be a leader in the Create a world class Find, develop and retain Leverage our position at markets we choose operational platform great people the centre of STEM to to serve through data, deliver s
Slide 23: Places: Highly focused on driving scale in the best STEM markets
STRATEGIC PROGRESS AND OUTLOOK Places: Highly focused on driving scale in the best STEM markets STEM Global £112bn Top 5 markets Other markets USA Europe Middle East & Asia Total addressable market: £47bn Total addressable market: £35bn Total addressable market: £10bn SThree market share: c.0.7% STh
Slide 24: Platform: Technology Improvement Programme
To hear more about our Technology Improvement STRATEGIC PROGRESS AND OUTLOOK Programme, right-click on the image and select “Open Platform: Technology Improvement Programme Weblink in Browser” Delivering the future of STEM staffing through insight, innovation and operational excellence Single cohere
Slide 25: People: uniting our global teams
STRATEGIC PROGRESS AND OUTLOOK People: uniting our global teams Our values We are We are We build We think We do the all in partnerships big right thing eNPS of 43 continues to be in top quartile of professional services STHREE.COM 25
Slide 26: Position: a clear value proposition for our customers
STRATEGIC PROGRESS AND OUTLOOK Position: a clear value proposition for our customers A winning house of brands with competitive and differentiated value propositions Strong, sector- Customer clarity relevant brands on who we are Differentiated Thought value leadership propositions STHREE.COM 26
Slide 27: ESG: empowering a sustainable future through STEM
STRATEGIC PROGRESS AND OUTLOOK ESG: empowering a sustainable future through STEM Group ESG ambitions to 2024 SBTi validated near term and Positively impact 150,000 lives Double the share of our long-term targets to be Net Zero global clean energy business by 2050 announced 114,466 lives 142% growth
Slide 28: Well-placed to build on our position as a leader in STEM
STRATEGIC PROGRESS AND OUTLOOK Well-placed to build on our position as a leader in STEM and continue to deliver for our stakeholders 1 2 3 4 We focus only on hard- Our focus on Contract Prolonged market We are investing in to-find STEM skills in provides resilience conditions impacting state-of-the
Slide 29: Q&A
Q&A STHREE.COM
Slide 30: Appendix
Appendix STHREE.COM
Slide 31: Financial calendar
APPENDIX Financial calendar 2024 19 March FY24 Q1 Trading Update 25 April AGM 23 July FY24 Half Year Results 31 STHREE.COM 31
Slide 32: Introduction to SThree plc
Introduction to SThree plc STHREE.COM
Slide 33: We are SThree. The only global specialist talent partner focused on STEM
INTRODUCTION TO STHREE We are SThree. The only global specialist talent partner focused on roles in STEM. We are unique. Science Technology Engineering Mathematics Our Purpose Our Vision Bringing skilled people To be the #1 STEM talent together to build provider in the best the future STEM markets S
Slide 34: We are global: delivering STEM talent in the most important STEM markets
INTRODUCTION TO STHREE We are global: delivering STEM talent in the most important STEM markets guided by our market investment model Global footprint Top 5 markets STEM global market: £112bn Other markets ROW USA 23% DACH 36% Netherlands inc. Spain 20% £20bn USA £48bn Other 82% of global Rest of Eu
Slide 35: Our specialist brands are market leaders with clear propositions
INTRODUCTION TO STHREE Our specialist brands are market leaders with clear propositions • SThree operates a group of specialist recruitment brands focusing on STEM industries • All our brands are home grown Global leader in the provision of One of the most dynamic and highly created organically over
Slide 36: Our three recruitment services meet our clients' complex needs
INTRODUCTION TO STHREE Our three recruitment services meet our clients increasingly complex needs Independent Employed Permanent Contractors Contractors Placements to permanent positions Self-employed contractors Contractors employed by SThree for fixed term Revenue recognised at placement Billed by
Slide 37: Our unique model underpins our success driven by global megatrends
INTRODUCTION TO STHREE Our unique model underpins our success driven by global megatrends STEM M 8% S Flexible 18% talent 18% E 37% 26% 82% Technology Contract Employed Contractor (ECM) Life Sciences Independent Contractor Engineering Total Contract Other 48% 45% Permanent T Note 1: Business mix is
Slide 38: Employed contractor model provides platform for future growth
INTRODUCTION TO STHREE Employed contractor model provides platform for future growth With growing demand from clients globally and high barriers to entry FY19 (pre-pandemic) FY22 FY23 22% 18% 26% 23% 35% 37% 74% 78% 82% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 45%
Slide 39: Strategic focus on global STEM and flexible talent drives outperformance
INTRODUCTION TO STHREE Strategic focus on global STEM and flexible talent drives outperformance SThree vs UK-listed staffers – Net fees Resilient business model demonstrates (indexed to 100) higher quality throughout the cycle 133% 118% • Shallower drop during the pandemic 120% 100% • Less volatilit
Slide 40: Technology Improvement Programme
To hear more about our Technology Improvement INTRODUCTION TO STHREE Programme, right-click on the image and select “Open Technology Improvement Programme Weblink in Browser” A key enabler for growth and delivering the future of STEM staffing through insight, innovation and operational excellence Si
Slide 41: Well-placed to build on our position as a leader in STEM
INTRODUCTION TO STHREE Well-placed to build on our position as a leader in STEM and continue to deliver for our stakeholders Excellent visibility of Global megatrends drive Investing in state-of-the- Out-performance repeatable fees through an increasing demand for art technology to drive sustained t
Slide 42: Business overview
Business overview STHREE.COM
Slide 43: Group performance
Group performance Resilient Net Fees performance, down 4% YoY driven by the execution of our strategy and demand for STEM skills STHREE.COM
Slide 44: Group performance
BUSINESS OVERVIEW Group performance Net fees down 4% vs prior year driven by the execution of our strategy and demand for STEM skills Revenue Net Fees £1,663.2m £418.8m flat vs 2022 down 4% vs 2022 Average total headcount NPS 2,819 FTE 43 down 2% vs 2022 Note 1: All % movements on constant currency
Slide 45: Resilient Net Fee performance driven by our strategic focus on Contract
BUSINESS OVERVIEW Resilient Net Fee performance driven by our strategic focus on Contract Contract business now represents 82% of Group Net Fees FY23 vs FY22 Contract Net Fees as % of Contract revenue 21.7% Contract +1% 2022: 21.7% 2019 (pre-pandemic): 20.3% Permanent -22% Permanent Net Fees as % of
Slide 46: Group performance
BUSINESS OVERVIEW Group performance Net Fees down 4% against a record prior year and challenging global macro-economic backdrop Contractor Order Book Region mix Service mix Skills mix 3% 8% 18% -3% 23% 3% 9% 22% 36% 26% 35% 26% 22% vs 2022 47% 48% 78% 22% 36% 82% 18% 39% Net Fees (£m) FY23 £418.8m D
Slide 47: Regional and skill split
BUSINESS OVERVIEW Regional and skill split Resilient performance across our regions and skills Net Fees YoY Life Technology Engineering Other Total Sciences DACH -2% -20% +17% -23% -3% USA -19% -24% +16% -54% -14% Rest of Europe -3% -17% +9% -2% -4% Netherlands & Spain +8% -18% +9% -1% +6% Middle Ea
Slide 48: Cost base analysis
BUSINESS OVERVIEW Cost base analysis Cost base Payroll costs 8% 19% 9% 2% 5% 76% 81% Payroll Advertising Other Sales Other business functions Property IT & Professional STHREE.COM 48
Slide 49: Foreign exchange impact
BUSINESS OVERVIEW Foreign exchange impact Year ended Year ended YoY exchange 30 Nov 2023 30 Nov 2022 rate movement Average Closing Average Closing Average Closing EUR € 1.15 1.16 1.18 1.16 +2.3% -0.1% The Group’s Net Fees and Operating Profit increased by £5.6m and £2.3m respectively, USD $ 1.24 1.2
Slide 50: Historical Net Fees and Contract margin
BUSINESS OVERVIEW Historical Net Fees and Contract margin Net Fees £287.7m £321.1m £338.0m £308.6m £355.7m £430.6m £418.8m £96.4m £75.3m £86.6m £89.5m £89.0m £75.2m £84.2m £334.2m £343.5m £232.1m £251.4m £233.4m £266.2m Permanent £203.5m Contract FY17 FY18 FY19 FY20 FY21 FY22 FY23 Contract margin %
Slide 51: Historical operating profit and conversion ratio
BUSINESS OVERVIEW Historical operating profit and conversion ratio Adjusted operating profit £77.6m £76.4m £53.9m £60.0m £60.8m £44.9m £31.3m FY17 FY18 FY19 FY20 FY21 FY22 FY23 Adjusted conversion ratio % 16.8% 17.8% 17.1% 18.0% 18.2% 15.6% 10.1% FY17 FY18 FY19 FY20 FY21 FY22 FY23 Note 1: 2019,2020
Slide 52: Effective tax rate bridge
BUSINESS OVERVIEW Effective tax rate bridge 29.6% (1.5%) 28.1% ETR FY22 Profit mix, ETR FY23 unrecognised losses STHREE.COM 52
Slide 53: Earnings per share bridge
BUSINESS OVERVIEW Earnings per share bridge 0.9p 42.4p 0.5p 41.0p EPS FY22 Increase in profits, Change in ETR EPS FY23 change in number of shares STHREE.COM 53
Slide 54: City consensus
BUSINESS OVERVIEW City consensus As at 18 January 2024 Consensus Low High FY23 £417.4m £413.1m £418.8m Net Fees FY24 £428.6m £405.8m £438.8m FY25 £458.5m £447.0m £476.0m FY23 £71.4m £70.7m £71.9m PBT FY24 £76.2m £69.5m £79.8m FY25 £89.9m £83.2m £95.3m FY23 38.4p 37.1p 39.2p EPS (adj basic) FY24 40.4
Slide 55: Shareholder analysis
BUSINESS OVERVIEW Shareholder analysis As at 31 December 2023 Rank Fund Manager Holdings % 1 Kempen Capital Management 15,670,203 11.62% 2 JPMorgan Asset Management 8,572,218 6.36% 3 JO Hambro Capital Management 7,635,725 5.66% 4 Littlejohn & Co 6,905,325 5.12% 5 Allianz Global Investors 6,577,726 4
Slide 56: DACH
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Slide 57: DACH
BUSINESS OVERVIEW DACH Net Fees declined 3% YoY with Contract down 1% Revenue Net Fees Service mix Skills mix £524.7m £148.9m Contract Permanent 17% 3% Technology Life Sciences down 6% vs FY2022 down 3% vs FY2022 3% 28% 14% Engineering 29% Other 16% 13% 71% 67% 68% 72% Average total headcount NPS 87
Slide 58: DACH
BUSINESS OVERVIEW DACH 36% of group Net Fees Contractor Order Book Region Net Fees % £58.6m Switzerland Austria £56.7m 7% 5% • Net Fees declined 3% YoY (Contract down 1% and Permanent down 8%) • Germany, our largest country in the region, saw Contract down 1% with -3% overall Net Fees down 4%, drive
Slide 59: USA
USA STHREE.COM
Slide 60: USA
BUSINESS OVERVIEW USA Net fees declined 14% YoY with Contract down 4% Revenue Net Fees Service mix Skills mix £328.3m £96.4m 12% Contract Permanent 5% 10% 16% Technology Life Sciences down 3% vs FY2022 Down 14% vs FY2022 21% Engineering 17% Other 41% 30% 43% 79% 38% 88% Average total headcount NPS 4
Slide 61: USA
BUSINESS OVERVIEW USA 23% of group Net Fees Contractor Order Book £51.9m • USA saw Net Fees decline 14% YoY. £49.0m -15% • Strategic shift toward Contract in region, which now represents 88% of Net Fees. vs 2022 • Contract Net Fees down 4% YoY reflecting Life Sciences, down 16% YoY in line with the
Slide 62: Rest of Europe
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Slide 63: Rest of Europe
BUSINESS OVERVIEW Rest of Europe Net Fees decline 4% YoY with Contract up 3% Revenue Net Fees Service mix Skills mix £399.9m £70.4m 12% 5% Contract Permanent 13% 13% Technology Life Sciences flat vs 2022 down 4% vs 2022 Engineering 14% 12% Other 55% 56% 20% 88% 17% 95% Average total headcount NPS 49
Slide 64: Rest of Europe
BUSINESS OVERVIEW Rest of Europe 17% of Group Net Fees Contractor Order Book Region Net Fees % Luxembourg £30.3m £29.5m France • Net Fees declined 4% YoY. 1% 15% • Contract, which represents 95% of Net £23.6m Ireland 2% Fees for the region, grew 3%. • The UK, our largest country in the region -3% (6
Slide 65: Netherlands & Spain
Netherlands & Spain STHREE.COM
Slide 66: Netherlands & Spain
BUSINESS OVERVIEW Netherlands & Spain Net Fees up 6% YoY Revenue Net Fees Service mix Skills mix £367.6m £82.1m 7% 8% Contract Permanent 9% 9% Technology Life Sciences up 11% vs 2022 up 6% vs 2022 Engineering Other 50% 50% 35% 36% 92% 6% 93% 5% Average total headcount NPS 422 FTE 39 Net Fees (£m) up
Slide 67: Netherlands & Spain
BUSINESS OVERVIEW Netherlands & Spain 20% of Group Net Fees Contractor Order Book Region Net Fees % Spain £49.5m £44.1m 6% • Net Fees up 6% YoY, with strong growth in Contract up 7%, partially offset by Permanent down 2%. £34.2m +12% vs 2022 • The Netherlands, which represents 94% of the region, saw
Slide 68: Middle East & Asia
Middle East & Asia STHREE.COM
Slide 69: Middle East & Asia
BUSINESS OVERVIEW Middle East & Asia Net Fees up 3% YoY with Contract up 29% Revenue Net fees Service mix Skills mix £42.6m £20.9m Contract Permanent 27% Technology Life Sciences up 1% vs 2022 up 3% vs 2022 33% Engineering 29% 36% 30% Other 39% 64% 71% 19% 14% 13% 27% Average total headcount NPS 185
Slide 70: Middle East & Asia
BUSINESS OVERVIEW Middle East & Asia 5% of Group Net Fees Contractor Order Book Region Net Fees % £4.2m Singapore 6% £3.5m • Net Fees up 3% YoY, with Contract up 29% and Permanent down 6%. £2.9m • Japan, which represents 45% of the region, -15% 50% was up 6% YoY driven by Engineering and vs 2022 Jap
Slide 71: Group balance sheet
Group balance sheet Robust financial position STHREE.COM
Slide 72: Very strong balance sheet
BUSINESS OVERVIEW Very strong balance sheet Backed by substantial undrawn debt facilities 30 Nov 2023 30 Nov 2022 Net working capital Intangible assets £7.1m £0.8m Permanent (£0.2m) Property, plant & equipment £4.4m £5.5m Contract £145.2m Net working capital £145.0m £147.0m £145.0m Net lease liabili
Slide 73: Cashflow statement
BUSINESS OVERVIEW Cashflow statement 30 Nov 2023 30 Nov 2022 Operating profit £76.4m £77.6m Non-cash items £14.8m £25.4m Working capital £2.1m (£38.6m) Operating cash flow £93.3m £64.4m Tax (£19.5m) (£18.9m) Capex (£8.2m) (£3.7m) Bank interest / Lease principal payments (£12.7m) (£14.3m) LTIPS / Tra
Slide 74: Free cash flow conversion
BUSINESS OVERVIEW Free cash flow conversion FY 2023 Uses of free cash £14.8m £2.1m £93.3m (£19.5m) £8.2m CAPEX £7.7m £76.4m (£12.7m) LTIPs/tracker shares/other £61.1m £27.4m Dividends £17.8m Net increase in cash balance Operating profit Non-cash items Working capital Operating cash flow Tax paid Ban
Slide 75: Banking facility
BUSINESS OVERVIEW Banking facility Net cash £83m as at 30 November 2023 Total facility £50m RCF + £5m overdraft + £30m accordion Drawn facility Nil Interest rate SONIA + 1.2% - 1.8% Covenants: Interest cover 4:1 EBITDA / interest Covenants: Leverage ratio 3:1 Net debt / EBITDA Term £50m RCF expires