Sthree Plc · LSE:STEM
Sthree — H1 2024 Earnings Presentation
75 slides from Sthree's earnings presentation, July 2024
Slide 1: Half Year Results 2024
Half Year Results 2024 Presentation for the Half Year ended 31 May 2024 Timo Lehne, CEO Andrew Beach, CFO PRIVATE AND CONFIDENTIAL STHREE.COM
Slide 2: Highlights: good financial and strategic progress
STHREE INVESTOR PRESENTATION Highlights: good financial and strategic progress Strong performance Platform on track Well-positioned Despite challenging macro Great progress on the Currently tracking to FY24 environment, a solid set of Technology Improvement market expectations and results Programme
Slide 3: We are SThree. The global STEM-specialist talent partner
We are SThree. The global STEM-specialist talent partner. We are unique. STHREE.COM 3
Slide 4: 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 S Flexible talent 6% 16% 17% E 29% 38% Net Fees by skill1 84% Net Fees by service1 Contract Employed Contractor (ECM) Technology Life Sciences Independent Contractor Engineering Total Contract Othe
Slide 5: Resilient performance despite ongoing challenging macro environment
STHREE INVESTOR PRESENTATION Resilient performance despite ongoing challenging macro environment Resilient performance against record comps Good forward visibility of Net Fees Net Fees Contractor Order Book £188.7m £182.1m down -7% vs HY231 down -2% vs May 20231 Tight cost control Strong Balance She
Slide 6: Financial review
Financial review STHREE.COM
Slide 7: Third highest H1 Net Fees on record despite challenging backdrop
FINANCIAL REVIEW Third highest H1 Net Fees on record despite challenging global macro- economic backdrop Conversion ratio elevated due to tight cost control, lower personnel expenses and phasing of strategic investments Net Fees Operating profit and OPCR HY24 £188.7m HY24 £37.7m 20.0% HY23 £208.6m P
Slide 8: 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 staffers1 – Net Fees (indexed to 100) 133% 116% 120% 100% 95% 86% 61% CY Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun SThree 84% 16% 2019 2 CY20 CY20 CY20 CY20 CY21 CY21
Slide 9: Operating profit enhanced by efficient management of costs
FINANCIAL REVIEW Operating profit enhanced by efficient management of costs and lower personnel expenses Actual LFL HY24 HY23 Movement Movement1 Contract Net fees £158.7m £170.0m -7% -4% Permanent Net fees £30.0m £38.6m -22% -18% Net fees £188.7m £208.6m -10% -7% Operating profit £37.7m £38.1m -1% +
Slide 10: Net Fees from a well-balanced business
FINANCIAL REVIEW Net Fees from a well-balanced business Strong growth in Engineering driven by clean energy business Regions Skills Net Fees by region HY24 vs HY232 DACH -12% 5% 6% Netherlands & Spain +7% 5% 8% Rest of Europe -10% 22% 34% 23% USA -13% 36% 29% 24% Middle East & Asia +11% 49% 48% Grou
Slide 11: Employed contractor model continues to provide platform for future growth
FINANCIAL REVIEW Employed contractor model continues to provide platform for future growth ECM share of Net Fees up 16%pts since HY19 HY19 (pre -pandemic) HY23 HY24 19% 16% 22% 26% 36% 38% 74% 81% 84% Contract Contract Contract Employed Contractor (ECM ) Independent Contractor 46% 45% Total Contract
Slide 12: Contractor Order Book provides sector-leading visibility
FINANCIAL REVIEW Contractor Order Book1 provides sector-leading visibility Despite being marginally down, continues to provide a robust platform underpinning our near-term visibility £186.6m2 £186.0m2 £182.1m -2% YoY3 Nov 2020 Nov 2021 Nov 2022 May 2022 May 2023 May 2024 Note 1: Contractor Order Boo
Slide 13: Strong extensions continue to underpin Contract performance
FINANCIAL REVIEW Strong extensions continue to underpin Contract performance Contract Net Fees down 4% YoY Contract length Pricing holding up Salaries continue increasing to rise Average Contract length Contract margin Average Contract salary 51 weeks 21.7% £102k up 9% YoY flat YoY up 4% YoY STHREE.
Slide 14: Productivity remains elevated
FINANCIAL REVIEW Productivity remains elevated Down slightly compared to exceptional levels in HY22, though remains 33% above pre-pandemic levels in HY19 Productivity Productivity reflects • uncertain macro-economic +4% vs HY2023 environment impacting new placement activity, especially in Technology
Slide 15: Technology Improvement Programme on track
FINANCIAL REVIEW Technology Improvement Programme on track Update to phasing of expenditure, remaining within budget Total expenditure £30m - £35m £9m - £12m £10m £7m - £9m HY24 HY23 £7m- Underlying OP (pre-TIP) £38.6m £40.7m £6m £8m £3m- £4m Underlying OPCR 20.5% 19.5% TIP Opex £0.9m £2.6m £4m- Rep
Slide 16: Operating profit impacted by Net Fees offset by lower costs
FINANCIAL REVIEW Operating profit impacted by Net Fees offset by lower costs £38.1m (£11.3m) £5.3m £37.7m £1.7m £12.5m (£8.6m) Operating Contract Permanent People Technology Other Operating profit HY23 Net Fees Net Fees costs improvement operating profit HY24 programme costs STHREE.COM 16
Slide 17: Strong cash performance
FINANCIAL REVIEW Strong cash performance Cash position up 8% since FY23 year end £10.7m (£6.8m) (£9.7m) £37.7m (£12.1m) (£13.0m) Decrease in trade debtors/acc income £15.0m Decrease in trade creditors/accruals (£9.5m) £90.0m Decrease in other accruals/provisions (£12.3m) £83.2m Share purchase for EB
Slide 18: Strong balance sheet supports disciplined capital allocation
FINANCIAL REVIEW Strong balance sheet supports disciplined capital allocation Maintaining a strong balance sheet and sustainable, through-the-cycle dividend Organic growth Interim dividend 5.1p +2% Business improvement HY23: 5.0p vs HY23 Acquisitions Aligns with our current dividend policy of cover
Slide 19: Key financial takeaways
FINANCIAL REVIEW Key financial takeaways Third highest H1 Net Fees on record Resilient Net Fee Profits reflect phasing of Good visibility of Strong balance sheet performance strategic investments future Net Fees to fund our ambitions to deliver future growth STHREE.COM 19
Slide 20: Strategic progress and outlook
Strategic progress and outlook STHREE.COM
Slide 21: 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 22: Places: Highly focused on driving scale in 11 of the best STEM markets
STRATEGIC PROGRESS AND OUTLOOK Places: Highly focused on driving scale in 11 of the best STEM markets Global STEM Market £112bn Top 5 markets Other markets USA Europe Middle East & Asia Total addressable market: £44bn Total addressable market: £34bn Total addressable market: £10bn SThree market shar
Slide 23: Platform: Technology Improvement Programme
STRATEGIC PROGRESS AND OUTLOOK Platform: Technology Improvement Programme Delivering the future of STEM staffing through insight, innovation and operational excellence Single coherent Market leading, Offers scale at Difficult to replicate technology platform data driven insights incremental cost Sys
Slide 24: People: Uniting our global teams
STRATEGIC PROGRESS AND OUTLOOK People: Uniting our global teams Progress Focus in H2 Enhancing our employee value Investing in our current and proposition future leaders Focusing on activities that drive Roll-out of senior leadership employee engagement and development programmes in diversity to ens
Slide 25: Position: a clear value proposition for our customers
STRATEGIC PROGRESS AND OUTLOOK Position: a clear value proposition for our customers Progress Focus in H2 Reinforcing our go-to-market Optimising our go-to-market channels brands Invested in improvements in the Creating new visual identities for Brand websites and other go-to- our go-to-market brand
Slide 26: 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 123,746 lives 173% growth
Slide 27: 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 Our focus on STEM and We are investing in technology FY24 performance currently Ambition to be employer of Contract provides resilience to drive scale and sector- expected to be in line with choice with environme
Slide 28: Q&A
Q&A STHREE.COM
Slide 29: Appendix
Appendix STHREE.COM
Slide 30: Financial calendar
APPENDIX Financial calendar 2024 2025 23 July Investor Briefing 28 January FY24 Full Year Results 24 September FY24 Q3 Trading Update 17 December FY24 Full Year Trading Update 30 STHREE.COM 30
Slide 31: Introduction to SThree plc
Introduction to SThree plc STHREE.COM
Slide 32: 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 33: 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 22% DACH 34% Netherlands inc. Spain 22% £20bn USA £48bn Other 82% of global Rest of Eu
Slide 34: 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 ove
Slide 35: 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 •
Slide 36: 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 S Flexible talent 6% 16% 17% E 29% 38% Net Fees by skill1 84% Net Fees by service1 Contract Employed Contractor (ECM) Technology Life Sciences Independent Contractor Engineering Total Contract Other2 48%
Slide 37: Employed contractor model continues to provide platform for future growth
INTRODUCTION TO STHREE Employed contractor model continues to provide platform for future growth ECM share of Net Fees up 16%pts since HY19 HY19 (pre -pandemic) HY23 HY24 19% 16% 22% 26% 36% 38% 74% 81% 84% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 46% 45% Total Con
Slide 38: 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 (indexed to 100) 133% Resilient business model demonstrates higher 116% quality throughout the cycle 120% 100% • Shallower drop during the pandemic 95% 86% • Less v
Slide 39: Platform: Technology Improvement Programme
To hear more about our Technology Improvement INTRODUCTION TO STHREE 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 coherent Marke
Slide 40: 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 art technology to drive sustained throu
Slide 41: Business overview
Business overview STHREE.COM
Slide 42: Group performance
Group performance Resilient Net Fees performance driven by the execution of our strategy and demand for STEM skills STHREE.COM
Slide 43: Group performance: Net Fees down 7%
BUSINESS OVERVIEW Group performance Net Fees down 7% underpinned by the execution of our strategy and demand for STEM skills Revenue Net Fees £763.4m £188.7m down 5% vs HY23 down 7% vs HY23 Average total headcount eNPS 2,641 FTE 45 down 10% vs HY23 Note 1: All % movements on constant currency STHREE
Slide 44: 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 84% of Group Net Fees HY24 vs HY23 Contract Net Fees as % of Contract revenue 21.7% Contract -4% 2023: 21.7% 2019 (pre-pandemic): 19.9% Permanent -18% Permanent Net Fees as % of
Slide 45: Group performance
BUSINESS OVERVIEW Group performance Net Fees down 7% YoY despite the ongoing challenging backdrop and against a strong prior year performance Contractor Order Book Region mix Service mix Skills mix 5% 6% 16% -2% 5% 8% 22% 19% 34% 23% 36% 29% 24% vs 2023 49% 48% 17% 17% 81% 19% 19% 84% 17% 22% Net Fe
Slide 46: 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 -15% -8% +4% -37% -12% USA -25% -22% +9% -48% -13% Rest of Europe -5% -20% +13% -40% -10% Netherlands & Spain +5% -5% +12% -1% +7% Middle
Slide 47: Cost base analysis
BUSINESS OVERVIEW Cost base analysis Cost base Payroll costs 6% 8% 20% 2% 5% 79% 80% Payroll Advertising Other Sales Other business functions Property IT & Professional STHREE.COM 47
Slide 48: Foreign exchange impact
BUSINESS OVERVIEW Foreign exchange impact Half Year ended Half Year ended YoY exchange 31 May 2024 31 May 2023 rate movement Average Closing Average Closing Average Closing EUR € 1.17 1.17 1.14 1.16 -2.5% -0.9% The Group’s Net Fees and Operating Profit decreased by £5.0m and £1.5m respectively, USD
Slide 49: Historical Net Fees and contract margin
BUSINESS OVERVIEW Historical Net Fees and contract margin Net Fees £148.4m £160.9m £149.9m £164.3m £203.1m £208.6m £188.7m £46.1m £38.6m £30.0m £41.4m £42.4m £41.7m £36.4m £157.0m £170.0m £158.7m Permanent £106.7m £119.5m £113.5m £121.9m Contract HY18 HY19 HY20 HY21 HY22 HY23 HY24 Contract margin %
Slide 50: Historical operating profit and conversion ratio
BUSINESS OVERVIEW Historical operating profit and conversion ratio Adjusted operating profit £44.6m £38.1m £37.7m £24.8m £28.1m £20.4m £13.9m HY18 HY19 HY20 HY21 HY22 HY23 HY24 Adjusted conversion ratio % 22.0% 18.3% 20.0% 15.4% 17.1% 13.7% 9.2% HY18 HY19 HY20 HY21 HY22 HY23 HY24 Note 1: 2019,2020 a
Slide 51: Effective tax rate bridge
BUSINESS OVERVIEW Effective tax rate bridge 28.1% (3.2%) 3.0% 27.9% ETR FY23 Profit mix UK corporation ETR HY24 tax increase STHREE.COM 51
Slide 52: Earnings per share bridge
BUSINESS OVERVIEW Earnings per share bridge 0.3p (0.1p) 21.0p 21.2p EPS HY23 Increase in profits Change in ETR, EPS HY24 change in number of shares STHREE.COM 52
Slide 53: City consensus
BUSINESS OVERVIEW City consensus As at 28 June 2024 Consensus Low High FY24 £397.9m £390.0m £402.9m Net Fees FY25 £421.6m £414.7m £430.1m FY26 £449.6m £434.8m £469.7m FY24 £69.2m £68.7m £70.7m PBT FY25 £79.3m £76.7m £80.8m FY26 £88.6m £84.2m £91.9m FY24 36.7p 36.3p 37.2p Basic EPS FY25 41.6p 40.2p 4
Slide 54: Shareholder analysis
BUSINESS OVERVIEW Shareholder analysis As at 30 June 2024 Rank Fund Manager Holdings % 1 Kempen Capital Management 15,995,418 11.84% 2 JPMorgan Asset Management 8,189,708 6.06% 3 JO Hambro Capital Management 7,785,594 5.77% 4 BlackRock 7,113,742 5.27% 5 Allianz Global Investors 6,528,893 4.83% 6 Mon
Slide 55: DACH
DACH STHREE.COM
Slide 56: DACH: Net Fees declined 12% YoY
BUSINESS OVERVIEW DACH Net Fees declined 12% YoY with Contract down 6% Revenue Net Fees Service mix Skills mix £230.0m £64.2m 23% Contract Permanent 2% Technology Life Sciences down 11% vs HY2023 down 12% vs HY2023 18% 3% Engineering 16% 28% Other 13% 13% 72% 68% 66% 77% Average total headcount 818
Slide 57: DACH
BUSINESS OVERVIEW DACH 34% of group Net Fees Contractor Order Book Region Net Fees % Switzerland Austria £64.5m • The region saw Net Fees decline by 12% 8% 5% YoY, with Technology down 15%, but £61.2m £60.5m partially offset by Engineering up 4% YoY. DACH Contract Net Fees were down 6% and Permanent
Slide 58: USA
USA STHREE.COM
Slide 59: USA: Net Fees declined 13% YoY
BUSINESS OVERVIEW USA Net Fees declined 13% YoY with Contract down 8% Revenue Net Fees Service mix Skills mix £154.5m £41.8m 9% 14% Contract Permanent 4% 6% 14% Technology Life Sciences Engineering down 3% vs HY2023 down 13% vs HY2023 16% Other 38% 47% 40% 36% 86% 91% Average total headcount 412 FTE
Slide 60: USA
BUSINESS OVERVIEW USA 22% of group Net Fees Contractor Order Book £51.7m • USA saw Net Fees decline 13% YoY. £46.9m £46.1m • Contract, which represents 91% of Net Fees, was down 8% YoY driven by Life Sciences, down 20% YoY and Technology, down 24% YoY, in line with the market conditions. -2% • Perma
Slide 61: Rest of Europe
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Slide 62: Rest of Europe: Net Fees declined 10% YoY
BUSINESS OVERVIEW Rest of Europe Net Fees declined 10% YoY with Contract down 7% Revenue Net Fees Service mix Skills mix £181.7m £31.3m 3% 6% Contract Permanent 9% 13% Technology Life Sciences down 7% vs HY2023 down 10% vs HY2023 16% Engineering Other 13% 56% 59% 18% 16% 94% 97% Average total headco
Slide 63: Rest of Europe
BUSINESS OVERVIEW Rest of Europe 17% of Group Net Fees Contractor Order Book Region Net Fees % £31.0m France • Net Fees for the region declined 10% YoY. £29.2m 17% Contract, which represents 97% of Net Fees declined 7%, with Permanent £27.3m declining 53%, driven by both market conditions and the tr
Slide 64: Netherlands & Spain
Netherlands & Spain STHREE.COM
Slide 65: Netherlands & Spain: Net Fees up 7% YoY
BUSINESS OVERVIEW Netherlands & Spain Net Fees up 7% YoY Revenue Net Fees Service mix Skills mix £175.9m £41.1m 8% 7% Contract Permanent 8% 9% Technology Life Sciences up 1% vs HY2023 up 7% vs HY2023 Engineering Other 50% 50% 37% 36% 93% 5% 92% 5% Average total headcount 415 FTE Net Fees (£m) down 5
Slide 66: Netherlands & Spain
BUSINESS OVERVIEW Netherlands & Spain 22% of Group Net Fees Contractor Order Book Region Net Fees % £44.4m Spain • Net Fees for the region were up 7% YoY, with 9% Contract up 6% and Permanent up 20%. £40.9m £40.6m • The Netherlands, our largest country in the region which accounts for 91% of Net Fee
Slide 67: Middle East & Asia
Middle East & Asia STHREE.COM
Slide 68: Middle East & Asia: Net Fees up 11%
BUSINESS OVERVIEW Middle East & Asia Net Fees up 11% Revenue Net Fees Service mix Skills mix £21.4m £10.3m Contract Permanent Technology Life Sciences up 5% vs HY2023 up 11% vs HY2023 32% 27% Engineering 39% 33% 28% Other 39% 61% 12% 11% 68% 27% 23% Average total headcount 193 FTE Net Fees (£m) up 3
Slide 69: Middle East & Asia
BUSINESS OVERVIEW Middle East & Asia 5% of Group Net Fees Contractor Order Book Region Net Fees % £3.6m £3.6m • Net Fees for the region were up 11% YoY, with £3.2m Contract down 13% and Permanent up 24%. Japan • Japan, which represents 47% of the region, saw Net Fees up 27% YoY, driven by +13% 47% E
Slide 70: Group balance sheet and Cash flow statement
Group balance sheet and Cash flow statement Robust financial position STHREE.COM
Slide 71: Very strong balance sheet
BUSINESS OVERVIEW Very strong balance sheet Backed by substantial undrawn debt facilities 31 May 2024 30 Nov 2023 Net working capital Intangible assets £10.0m £7.0m Permanent (£17.7m) Property, plant & equipment £5.7m £4.4m Contract £153.6m Net working capital £136.0m £145.0m £136.0m Net lease liabi
Slide 72: Cashflow statement
BUSINESS OVERVIEW Cashflow statement Half Year ended Half Year ended 31 May 2024 31 May 2023 Operating profit £37.7m £38.1m Non-cash items £10.7m £10.7m Working capital (£6.8m) £6.3m Operating cash flow £41.6m £55.1m Tax (£11.4m) (£10.2m) Capex (£5.0m) (£3.0m) Bank interest / Lease principal payment
Slide 73: Free cash flow conversion
BUSINESS OVERVIEW Free cash flow conversion HY 2024 Uses of £10.7m (£6.8m) free cash £41.6m (£11.4m) £37.7m £5.0m CAPEX (£5.4m) £12.5m £24.8m LTIPs/tracker shares/other £0.5m Dividends £6.8m Net increase in cash balance Operating profit Non-cash items Working capital Operating cash flow Tax paid Ban
Slide 74: Banking facility
BUSINESS OVERVIEW Banking facility Net cash £90m as at 31 May 2024 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 26 Ju
Slide 75: s|three
s|three®