Sthree Plc · LSE:STEM
Sthree — FY2018 Earnings Presentation
59 slides from Sthree's earnings presentation, Jan 28, 2019
Slide 1: Full Year Results Presentation 2018
Full Year Results Presentation 2018 Results For Year Ended 30 November 2018
Slide 2: About SThree
ABOUT STHREE Organically grown since Specialist recruiter 1986 focusing on STEM industries (Science, Technology, Over 2,900 staff, Engineering & 83% of GP Mathematics) generated outside UK&I Global business with 44 offices in 16 countries 72% Contract, 28% Permanent 2
Slide 3: 2018 Overview
2018 OVERVIEW Adjusted profit before tax up 20% to £53.4m, Contract now accounts for 72% of Group ahead of market consensus GP (FY 2017: 71%) GP up 12%* YoY in Q4 and FY 2018 Contract GP up 14%* YoY, with growth across all Growth in GP driven by Continental Europe sectors (+20%*) Permanent G
Slide 4: Strategy
STRATEGY
Slide 5: Our Purpose
OUR PURPOSE “We bring skilled people together to build the future” 5
Slide 6: Our Vision
OUR VISION To be the #1 STEM talent provider in the best STEM markets 6
Slide 7: Our Operating Principles
OUR OPERATING PRINCIPLES Build Trust Care Then Act Be Clear Then Aim High 7
Slide 8: 5 Year Strategy to Deliver Our Vision
5 YEAR STRATEGY TO DELIVER OUR VISION Grow and extend Develop and sustain Focus on Contract, regions, sectors and great customer drive Permanent services relationships profitability Generate incremental Build infrastructure for Find, retain and revenues through leveraged growth develop great people
Slide 9: Bringing Skilled People Together
BRINGING SKILLED PEOPLE TOGETHER In 2018, we placed over 20,000 skilled people 9
Slide 10: 2018 Progress
2018 PROGRESS Progress against our strategic priorities Grow and extend regions, • Opened new offices in Amsterdam, Eindhoven and Washington sectors and services • Group average sales headcount up 8% YoY • Focus on ICT, Life Sciences, Engineering & Energy resulting in strong growth (+12%*, +8%*, +16
Slide 11: Financial Results
FINANCIAL RESULTS
Slide 12: More Than Doubled Operating Profit Since 2013
MORE THAN DOUBLED OPERATING PROFIT SINCE 2013 Gross Profit Adjusted Operating Profit 12
Slide 13: Financial Highlights
FINANCIAL HIGHLIGHTS Adjusted As Reported Adjusted As Reported Adjusted As Reported Adjusted FY 2018 FY 2018 FY 2017 FY 2017 Actual Growth Actual Growth CC Growth* Revenue £1,258.2m £1,258.2m £1,114.5m £1,114.5m +13% +13% +13% Contract gross profit £232.1m £232.1m £203.5m £203.5m +14% +14% +14% Perm
Slide 14: Balance Sheet
BALANCE SHEET 30 Nov 30 Nov 2018 2017 Intangible assets and investments £11.6m £13.2m Property, plant & equipment £6.9m £6.7m Deferred tax assets £2.8m £4.2m Net Working Capital Net working capital £93.9m £67.0m Increase due to growth in Contract runner book and increase in DSO Provisions (£11.2m) (
Slide 15: Cash Flow Bridge
CASH FLOW BRIDGE £5.4m £0.3m (£2.9m) (£4.2m) £6.7m (£11.5m) £53.9m (£14.9m) (£18.1m) (£24.4m) £5.6m (£4.1m) YE 2017 Net Operating Depn and Share awards Foreign Treasury Capex Restructuring Taxes and Dividends Working YE 2018 Net Cash profit pre- amort & Exchange shares interest capital Debt except.
Slide 16: London Based Support Relocation
LONDON BASED SUPPORT RELOCATION 242 Roles relocated to Glasgow* Exceptional Charge £m’s Simple Payback of c2 years People and other costs £12.9m Property costs £1.1m Total £14.0m £5.5m annualised benefit Less: Regional Development £2.1m Grant Total Exceptional Cost £11.9m Net Cash outflow of £11.5m
Slide 17: Earnings Per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Adjusted As Reported Adjusted As Reported Adjusted As Reported FY 2018 FY 2018 FY 2017 FY 2017 Actual Growth Actual Growth Profit after tax £39.5m £34.3m £33.1m £27.6m +20% +24% Weighted For basic EPS 128.7m 128.7m 128.6m 128.6m - - average Dilutive impact of share p
Slide 18: Foreign Exchange Impact
FOREIGN EXCHANGE IMPACT Year Ended Year Ended YoY Exchange 30 November 2018 30 November 2017 Rate Movement Average Closing Average Closing Average Closing EUR € 1.13 1.13 1.15 1.14 +1.8% +0.9% USD $ 1.34 1.28 1.28 1.35 -4.6% +5.8% Year Ended Year Ended 30 November 2018 30 November 2017 Operating Ope
Slide 19: Operating Review
OPERATING REVIEW
Slide 20: What Drives Growth
WHAT DRIVES GROWTH STEM specialist Contract focus STEM fundamentals strong Ideal for STEM Attractive supply/demand imbalance Economic case = lifetime value + profitability Specialist brands in specialist markets Resilience, visibility, barriers to entry Growing markets Management Stron
Slide 21: Well Diversified Business
WELL DIVERSIFIED BUSINESS DIVISION GEOGRAPHICAL SECTOR DIVERSIFICATION DIVERSIFICATION DIVERSIFICATION 2% 5% 17% 28% 21% 21% FY 2018 44% FY 2018 21% FY 2018 10% 72% 5% 10% 31% 13% C Europe 57% 2% Perm 7% 19% 22% 29% 22% 43% FY 2017 FY 2017 FY 2017 19% 9% 71% 5% 9% 28% 15% C Europe 52% UK&I Benelux I
Slide 22: Why Contract?
WHY CONTRACT? Particularly suited to STEM staffing market Economic case – higher lifetime value and profitability More predictable and visible earnings High barriers to entry Growth in new business models Resilient in uncertain markets and strong as markets improve Underpins robust commitment to div
Slide 23: Contract – Runners Doubled Since 2013
CONTRACT – Runners doubled since 2013 CONTRACT RUNNERS +8% +9% +13% +31% +11% +8% +12% +10% vs vs vs vs vs vs vs vs FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Contract FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 margin % FY 2018 19.9% FY 2017 19.8% GROSS PROFIT PER +4%* -2%* -5%* 0%* +3%* -1%* Flat* +
Slide 24: Contract Runners – Growth and Seasonality
CONTRACT RUNNERS – Growth and seasonality 115% 112% 110% 110% 108% 105% 100% 95% 95% 90% November December January February March April May June July August September October November 2016 2017 2018 2019 Note 1: January 2019 runners is current estimate 24
Slide 25: Permanent – Productivity up 7% YoY
PERMANENT – Productivity up 7%* YoY PERMANENT PLACEMENT Placement VOLUMES +13% -1% -12% +3% -3% -11% -13% +1% volumes up 1% vs vs vs vs vs vs vs vs FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 YoY FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Average fee up 4%* YoY PERMANENT AVERAGE FEE +6%* +4%* 0%* +1%*
Slide 26: Innovation
INNOVATION Buy Build Rent £2.4m on “Build” spend Innovation in operating expenses in 2018 (2017: £2m) 26
Slide 27: Outlook
OUTLOOK
Slide 28: 2019 Priorities
2019 PRIORITIES Grow and extend regions, • Invest and grow in key markets, particularly in USA, Germany, Netherlands & Japan sectors and services • Maximise opportunities in ICT, Life Sciences, Engineering, Energy and Banking & Finance • In line with our growth markets, we expect to open new offices
Slide 29: SThree Resilience
STHREE RESILIENCE Our features Our Position Attractive market fundamentals STEM Tech grow ing 2.8x faster than w ider economy specialists Rapidly changing nature of tech ensures skill shortages, requiring specialist recruitment to fill positions Macro-economic Risks 72% of the Group’s GP in
Slide 30: Outlook
OUTLOOK Trading outlook remains positive across our key international markets Entering 2019 in a strong position, whilst mindful of elevating macro-economic & political risks Continued resilience through diversification by sector and geography, with experienced management team Continued focus on del
Slide 31: Financial Calendar
FINANCIAL CALENDAR 2019 28 January Annual results for the year ended 30 November 2018 15 March Q1 Trading Statement 24 April Annual General Meeting 14 June Trading update for the six months ended 31 May 2019 22 July Interim results for the six months ended 31 May 2019 13 September Q3 Trading Stateme
Slide 32: Supplementary Material
SUPPLEMENTARY " MATERIAL | a serra Err ~ — a _ wa
Slide 33: Contract / Permanent Gross Profit Analysis
CONTRACT / PERMANENT GROSS PROFIT ANALYSIS DIVISION GEOGRAPHY SECTOR 18% 6% 28% 27% 26% 29% 41% 34% 28% 55% FY 2018 94% 82% 72% 73% 74% 71% 66% 72% 59% 45% UK&I C Europe USA APAC & ME ICT Banking & Energy Engineering Life Sciences Finance Contract Permanent 7% 21% 29% 25% 28% 31% 36% 29% 49% 45% FY
Slide 34: Geographical Gross Profit Analysis
GEOGRAPHICAL GROSS PROFIT ANALYSIS FY 2018 FY 2017 GROSS PROFIT 23% 21% 18% GROWTH / 13% 9% (DECLINE) BY 11% 6% 8% REGION* 1% (4%) (5%) UK&I (14%) Benelux France Germany 5% USA 7% 17% 19% 21% APAC & ME 22% GEOGRAPHICAL DIVERSIFICATION 21% 19% 31% 5% 28% 5% Japan ASIA PACIFIC & 29% MENA 17% MIDDLE EA
Slide 35: Sector Gross Profit Analysis
SECTOR GROSS PROFIT ANALYSIS FY 2018 FY 2017 30% 28% 25% GROSS PROFIT 16% 15% GROWTH / 12% (DECLINE) BY 8% 7% 5% SECTOR* 1% (1%) (2%) 2% 2% SECTORAL 21% 22% DIVERSIFICATION 44% 43% 10% 9% 10% 9% 13% 15% * Growth is at constant currency 35
Slide 36: Gross Profit Performance by Region
GROSS PROFIT PERFORMANCE BY REGION GP Growth YoY FY 18 Average Sales Headcount YoY Cont Perm Total Cont / Perm Mix Cont Perm Total Perm Cont Q3 18 -3% -33% -10% 18% 82% Q3 18 -1% -37% -12% 17% of UK&I Q4 18 -1% -16% -4% Group Q4 18 -5% -33% -13% FY 18 - -20% -5% FY 18 -1% -25% -9% Perm Cont Q3 18 +2
Slide 37: Gross Profit Performance by Region
GROSS PROFIT PERFORMANCE BY REGION GP Growth YoY HY 18 Average Sales Headcount YoY Cont Perm Total Cont / Perm Mix Cont Perm Total Perm Cont Q1 18 -1% -11% -3% 19% 81% Q1 18 +1% -9% -2% 18% of UK&I Q2 18 +3% -17% -2% Group Q2 18 -1% -22% -8% HY 18 +1% -15% -2% HY 18 - -16% -5% Perm Cont Q1 18 +19% +
Slide 38: Gross Profit Performance by Sector
GROSS PROFIT PERFORMANCE BY SECTOR GP Growth YoY FY 18 Average Sales Headcount YoY Cont Perm Total Cont / Perm Mix Cont Perm Total Perm Cont Q3 18 +12% +19% +14% 26% 74% Q3 18 +13% +3% +9% 44% of ICT Q4 18 +16% +24% +18% Group Q4 18 +11% +3% +9% FY 18 +12% +14% +12% FY 18 +13% +3% +10% Perm Cont Q3
Slide 39: Gross Profit Performance by Sector
GROSS PROFIT PERFORMANCE BY SECTOR GP Growth YoY HY 18 Average Sales Headcount YoY Cont Perm Total Cont / Perm Mix Cont Perm Total Perm Cont Q1 18 +6% -1% +5% 25% 75% Q1 18 +16% +2% +12% 45% of ICT Q2 18 +13% +11% +13% Group Q2 18 +11% +3% +9% HY 18 +10% +5% +9% HY 18 +14% +3% +10% Perm Cont Q1 18 +
Slide 40: UK&I Trading Metrics
UK&I TRADING METRICS UK FY GROSS PROFIT GROWTH YoY OFFICES Irel and Q1 Q2 Q3 Q4 FY NOV 18 8 17% of Contract -1% +3% -3% -1% - NOV 17 8 Group YoY - GP Permanent -11% -17% -33% -16% -20% Total -3% -2% -10% -4% -5% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY 2017 1% 1% ICT 18% Banking & Finance 12% 1
Slide 41: UK&I Trading Metrics
UK&I TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 349 FY 18 FY 18 FY 18 105 FY 17 FY 17 454 Cont Perm Total Cont Perm Total YoY YoY YoY -3% -31% -11% -3% -18% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FEE*1 344 FY 18 FY 18 FY
Slide 42: Benelux Trading Metrics
BENELUX TRADING METRICS 5% 1% Bel Lux 15% FY GROSS PROFIT GROWTH YoY OFFICES Neth Q1 Q2 Q3 Q4 FY NOV 18 9 21% of Contract +25% +28% +30% +18% +25% NOV 17 7 Group YoY +2 GP Permanent -6% +16% +46% +12% +14% Total +18% +26% +33% +17% +23% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY 2017 ICT 18% 7% B
Slide 43: Benelux Trading Metrics
BENELUX TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 391 FY 18 FY 18 FY 18 108 FY 17 FY 17 499 Cont Perm Total Cont Perm Total YoY YoY YoY +24% +3% +19% +15% +8% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FEE*1 357 FY 18 FY 18
Slide 44: DACH Trading Metrics
DACH TRADING METRICS FY GROSS PROFIT GROWTH YoY OFFICES Germa ny Q1 Q2 Q3 Q4 FY NOV 18 8 31% of Contract +16% +23% +22% +26% +22% NOV 17 8 Group YoY - GP Swi tz Permanent +13% +16% +18% +27% +19% Aus tri a Total +15% +21% +21% +27% +21% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY 2017 ICT Banking
Slide 45: DACH Trading Metrics
DACH TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 422 FY 18 FY 18 FY 18 281 FY 17 FY 17 703 Cont Perm Total Cont Perm Total YoY YoY YoY +5% +0% +3% +25% +15% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FEE*1 407 FY 18 FY 18 FY
Slide 46: France Trading Metrics
FRANCE TRADING METRICS France FY GROSS PROFIT GROWTH YoY OFFICES Q1 Q2 Q3 Q4 FY NOV 18 4 5% of Contract +13% +3% +7% +8% +8% NOV 17 3 Group YoY +1 GP Permanent -12% -25% +6% -35% -19% Total +7% -3% +7% -4% +1% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY 2017 ICT 19% Banking & Finance 18% 18% 24% 3
Slide 47: France Trading Metrics
FRANCE TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 95 FY 18 FY 18 FY 18 32 FY 17 FY 17 127 Cont Perm Total Cont Perm Total YoY YoY YoY -3% -2% -3% +9% -22% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FEE*1 97 FY 18 FY 18 FY 18
Slide 48: USA Trading Metrics
USA TRADING METRICS USA FY GROSS PROFIT GROWTH YoY OFFICES Q1 Q2 Q3 Q4 FY NOV 18 9 21% of Contract +10% +21% +11% +16% +14% NOV 17 8 Group YoY +1 GP Permanent -18% +6% +1% -11% -5% Total +1% +16% +8% +8% +8% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY 2017 ICT 14% 27% 14% Banking & Finance 31% Con
Slide 49: USA Trading Metrics
USA TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 266 FY 18 FY 18 FY 18 103 FY 17 FY 17 369 Cont Perm Total Cont Perm Total YoY YoY YoY +14% -14% +5% - -17% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FEE*1 247 FY 18 FY 18 FY 18
Slide 50: Asia Pacific & Middle East Trading Metrics
ASIA PACIFIC & MIDDLE EAST TRADING METRICS 2% 1% JapanMENA Other 2% FY GROSS PROFIT GROWTH YoY OFFICES Q1 Q2 Q3 Q4 FY NOV 18 6 5% of Contract -12% -14% +5% +16% -2% NOV 17 6 Group YoY - GP Permanent +44% +18% +29% +10% +24% Total +15% +1% +16% +13% +11% DIVISION MIX SECTOR MIX FY 2018 SECTOR MIX FY
Slide 51: Asia Pacific & Middle East Trading Metrics
ASIA PACIFIC & MIDDLE EAST TRADING METRICS PERIOD END CONTRACT PERMANENT SALES HEADCOUNT RUNNERS PLACEMENTS* 72 FY 18 FY 18 FY 18 108 FY 17 FY 17 180 Cont Perm Total Cont Perm Total YoY YoY YoY +9% +14% +12% +15% +19% AVERAGE CONTRACT GROSS PERMANENT SALES HEADCOUNT PROFIT PER DAY RATE1 PLACEMENT FE
Slide 52: Historical Gross Profit & Margin
HISTORICAL GROSS PROFIT & MARGIN FY GP £167.8m £162.4m £189.5m £199.5m £192.8m £218.2m £235.7m £258.7m £287.7m £321.1m £400m £300m £172.7m GROSS £200m £153.3m £125.2m £138.9m £102.4m £117.4m PROFIT £76.2m £89.8m £102.2m £101.2m £100m £119.8m £134.4m £148.4m £91.6m £87.3m £97.1m £91.6m £100.8m £110.5
Slide 53: Historical Operating Profit & Conversion Ratio
HISTORICAL OPERATING PROFIT & CONVERSION RATIO £18.0m £21.2m £30.0m £25.1m £21.0m £29.8m £41.5m £41.3m £44.9m £53.9m FY OP £60m ADJUSTED £50m OPERATING £40m PROFIT £33.5m £30m £25.6m before £27.4m £26.0m £20m £19.0m £21.4m exceptional £7.0m £14.1m £16.0m £14.3m items £10m £15.3m £19.3m £20.4m £11.0m
Slide 54: Headcount
HEADCOUNT Nov 10 May 11 Nov 11 May 12 Nov 12 May 13 Nov 13 May 14 Nov 14 May 15 Nov 15 May 16 Nov 16 May 17 Nov 17 May 18 Nov 18 Period End 1,719 1,865 2,109 2,100 2,021 2,125 2,232 2,484 2,483 2,571 2,752 2,712 2,590 2,642 2,866 2,805 2,979 Total Heads Period End 1,204 1,351 1,610 1,620 1,568 1,667
Slide 55: Sales Headcount
SALES HEADCOUNT Nov 10 May 11 Nov 11 May 12 Nov 12 May 13 Nov 13 May 14 Nov 14 May 15 Nov 15 May 16 Nov 16 May 17 Nov 17 May 18 Nov 18 Period End 1,204 1,351 1,610 1,620 1,568 1,667 1,797 2,015 2,016 2,051 2,185 2,142 2,044 2,064 2,257 2,189 2,332 Sales Heads 737 785 710 915 843 740 764 927 1,006 94
Slide 56: Sector Gross Profit Analysis
SECTOR GROSS PROFIT ANALYSIS GROUP BY SECTOR ICT BY REGION BANKING & FINANCE BY REGION 2% 4% 6% 20% 15% 17% 21% 7% 15% 18% 22% 26% 43% 44% 16% 18% 10% 9% 36% 40% 21% 28% 32% 9% 24% 12% 7% 15% 6% 10% 7% 13% 6% 15% ENERGY BY REGION ENGINEERING BY REGION LIFE SCIENCES BY REGION 5% 3% 11% 6% 11% 2% 24%
Slide 57: Cost Base Analysis
COST BASE ANALYSIS 2% 8% 15% 5% 6% Cost Payroll Base Costs 79% 85% Payroll Property Advertising IT & Professional Other Support Services Sales The Group has a flexible cost base Note 1: Based on costs for FY 2018 57
Slide 58: Cash Flow
CASH FLOW Adjusted As Reported Adjusted As Reported FY 2018 FY 2018 FY 2017 FY 2017 Commentary on Adjusted cash flow Operating profit £53.9m £47.5m £44.9m £38.2m Depreciation, amortisation and impairments £6.7m £6.9m £6.1m £6.1m Receivables & Payables Share awards charge and other non cash items £4.
Slide 59: 44 Offices in 16 Countries
44 OFFICES IN 16 COUNTRIES USA UK & IRELAND CONTINENTAL EUROPE Asia Pac & Middle East USA UK BELGIUM GERMANY Austin Birmingham Antwerp Berlin AUSTRALIA SINGAPORE UAE Boston Bristol Brussels Düsseldorf Sydney Singapore Dubai Chicago Glasgow Frankfurt Melbourne Houston London NETHERLANDS Hamburg JAPAN