Sthree Plc · LSE:STEM
Sthree — FY2022 Earnings Presentation
56 slides from Sthree's earnings presentation, Jan 30, 2023
Slide 1: Full Year Results 2022
Full Year Results 2022 Presentation for the full year ended 30 November 2022 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 Flexible 9% 22% S 22% talent 35% E 22% Employed Contractor (ECM) Technology 78% Life Sciences Contract Independent Contractor Engineering Total Contract Other Permanent 43% 47% T Note 1: Business m
Slide 4: Another year of record profits
STHREE INVESTOR PRESENTATION Another year of record profits Driven by execution of our strategy and demand for STEM skills Net fees Operating profit £430.6m £77.6m up 19% vs FY2021 up 23% vs FY2021 Contractor order book Closing cash position £186.0m £65.4m up 19% vs Nov 2021 up 14% vs Nov 2021 Note
Slide 5: Progress against our strategic pillars
STHREE INVESTOR PRESENTATION Progress against our strategic pillars Our Places Our Platform Our People Our Position To be a leader in the markets Create a world class Find, develop and retain Leveraging our position at the we choose to serve operational platform through great people centre of STEM t
Slide 6: Financial review
Financial review STHREE.COM
Slide 7: Seven consecutive quarters of net fee growth
FINANCIAL REVIEW Seven consecutive quarters of net fee growth FY22 net fees up 19% YoY against a strong comparative period Net fees Operating profit FY 22 £430.6m +19% FY 22 £77.6m FY 21 £355.7m +19% FY 21 £60.8m FY 20 £308.6m -8% FY 20 £31.3m FY 19 £338.0m FY 19 £60.0m Note 1: Numbers presented on
Slide 8: Execution of our strategy and demand for STEM skills drives record profit
FINANCIAL REVIEW Execution of our strategy and demand for STEM skills drives record profit Actual LFL FY22 FY21 movement movement Revenue £1,639.4m £1,330.7m +23% +22% Net fees £430.6m £355.7m +21% +19% Operating profit £77.6m £60.8m +28% +23% Conversion ratio 18.0% 17.1% +0.9%pts +0.6%pts Profit be
Slide 9: Strong trading performance driven by our strategic focus on Contract
FINANCIAL REVIEW Strong trading performance driven by our strategic focus on Contract Second year of double-digit net fee growth Contract net fees as % of Contract revenue FY22 vs FY21 21.7% Contract +23% FY2021: 21.5% FY2019 (pre-pandemic): 20.3% Permanent +6% Permanent net fees as % of salary Tota
Slide 10: Employed contractor model continues to drive growth
FINANCIAL REVIEW Employed contractor model continues to drive growth ECM net fees grew 28% YOY FY19 (pre-pandemic) FY21 FY22 22% 26% 23% 25% 32% 35% 74% 75% 78% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 43% 51% 43% Total Contract Permanent Note 1: Employed contracto
Slide 11: Regional and sector split
FINANCIAL REVIEW Regional and sector split Double digit growth achieved in every region Regions Sectors Net fees by region FY22 vs FY21 DACH +17% 3% 9% EMEA excl DACH +24% 22% 3% 9% USA +13% 26% 24% 35% APAC +42% 25% 36% 22% 20% Group +19% Net fees by sector FY22 vs FY21 36% 47% Technology +23% 47%
Slide 12: FY22 productivity exceptionally high
FINANCIAL REVIEW FY22 productivity exceptionally high FY23 productivity expected to revert towards more normal levels but to remain above pre-pandemic levels Productivity Growth driven by: • Strong levels of demand post pandemic +7% vs 2021 • Growth in Employed Contractor Model • Highly disciplined
Slide 13: Record net fees drives operating profit
FINANCIAL REVIEW Record net fees drives operating profit £6.8m (£42.0m) £68.1m (£4.1m) (£12.0m) £77.6m £60.8m Operating profit Contract Permanent People Technology Other operating Operating profit FY 2021 net fees net fees costs improvement costs FY 2022 programme Note 1: Numbers presented on an adj
Slide 14: Strong cash balance despite working capital impact of contractor model
FINANCIAL REVIEW Strong cash balance despite working capital impact of contractor model £25.4m (£38.6m) £77.6m (£18.9m) (£18.0m) (£19.6m) £65.4m £57.5m Increase in trade debtors/acc income (£59.3m) Increase in trade creditors/accruals £17.2m Prepayment for share purchases £3.5m Net cash Operating No
Slide 15: Full year dividend of 16.0p
FINANCIAL REVIEW Full year dividend of 16.0p FY22 EPS FY22 DPS FY22 Dividend cover 41.0p 16.0p 2.6x FY21: 31.8p FY21: 11.0p FY21: 2.9x +29% +45% vs FY2021 vs FY2021 Aligns with our current dividend policy of cover in the range of 2.5x to 3.0x STHREE.COM 15
Slide 16: Strong contractor order book providing good visibility
FINANCIAL REVIEW Strong contractor order book providing good visibility Growth across both employed and independent contractors £186.0m £156.5m £109.0m +19% vs 2021 Nov 2020 Nov 2021 Nov 2022 Nov 2020 Nov 2021 Nov 2022 Note 1 :Contractor order book represents value of net fees until contractual end
Slide 17: Key financial takeaways
FINANCIAL REVIEW Key financial takeaways Second consecutive record performance Double digit net fee growth Record profits Good visibility of Robust balance sheet across all regions future net fees STHREE.COM 17
Slide 18: Strategic progress and outlook
Strategic progress and outlook STHREE.COM
Slide 19: Progress against our ambitions for 2024
STRATEGIC PROGRESS AND OUTLOOK Progress against our ambitions for 2024 Market share of STEM On track Conversion ratio On track 33% (CR%)3 18% To grow Group market share faster than To deliver a sustainable operating profit peer group1 Net fee growth achieved in core regions 2022 vs conversion ratio
Slide 20: ESG: Empowering a sustainable future through STEM
STRATEGIC PROGRESS AND OUTLOOK ESG: Empowering a sustainable future through STEM Group ESG ambitions to 2024 To positively impact Doubling the share of our 150,000 lives global renewables business 88,741 lives 88% growth positively impacted since in renewables business net fees 1 Dec 2019 compared t
Slide 21: 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 Disciplined and focused Global megatrends drive Addition of strategic Trading in line with approach to strategic an increasing demand for investments and initiatives e
Slide 22: Q&A
Q&A STHREE.COM
Slide 23: Appendix
Appendix STHREE.COM
Slide 24: Financial calendar
APPENDIX Financial calendar 2023 2024 21 March Q1 Trading Update 30 January Annual results for the year ended 30 November 2023 20 June HY23 Trading Update 25 July Interim results for the six months ended 31 May 2023 19 September Q3 Trading Update 14 December FY23 Trading Update 24 Third Investor Bri
Slide 25: Business overview
Business overview STHREE.COM
Slide 26: Group performance
Group performance Net fees up 19% YoY driven by the execution of our strategy and demand for STEM skills STHREE.COM
Slide 27: Group performance
BUSINESS OVERVIEW Group performance Net fees up 19% vs 2021 driven by the execution of our strategy and demand for STEM skills Revenue Net fees £1,639m £430.6m up 22% vs FY2021 up 19% vs FY2021 Average total headcount NPS 2,890 FTE 52 up 12% vs FY2021 Note 1: Numbers presented on an adjusted basis N
Slide 28: Group performance
BUSINESS OVERVIEW Group performance Net fees up 19% vs prior year driven by increased demand for STEM skills Contractor Order Book Region Division Sector +19% 3% 9% 3% 22% 9% 26% 25% 35% 25% 36% 22% 20% vs 2021 47% 47% 75% 24% 36% 78% 22% 36% Net fees (£m) FY22 £430.6m DACH EMEA excl DACH Contract P
Slide 29: Regional and sector split
BUSINESS OVERVIEW Regional and sector split Double digit growth achieved in every region FY22 Net fees YoY Life Technology Engineering Other Total Sciences DACH +21% +2% +27% -18% +17% EMEA excl DACH +26% +14% +20% +35% +24% USA +18% +3% +32% +2% +13% APAC +34% +24% +645% +49% +42% Group +23% +6% +2
Slide 30: 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) Average by calendar year: 2020 2021 2022 126% 91% 110% 129% 120% 75% 98% 117% 100% 86% 61% SThree 78% 22% SThree UK-listed UK-listed 37% 63% staffers staffers
Slide 31: Cost base analysis
BUSINESS OVERVIEW Cost base analysis Cost base Payroll costs 7% 8% 19% 2% 6% 77% 81% Payroll Advertising Other Sales Other business functions Property IT & Professional STHREE.COM 31
Slide 32: Foreign exchange impact
BUSINESS OVERVIEW Foreign exchange impact Year ended Year ended YoY exchange 30 Nov 2022 30 Nov 2021 rate movement Average Closing Average Closing Average Closing The Group’s net fees and operating profit increased by £8.0m and £2.8m EUR € 1.18 1.16 1.16 1.17 -1.6% +1.3% respectively, due to an FX t
Slide 33: Historical net fees and contract margin
BUSINESS OVERVIEW Historical net fees and contract margin Net fees £258.7m £287.7m £321.1m £338.0m £308.6m £355.7m £430.6m £96.4m £86.6m £89.5m £89.0m £75.2m £84.2m £85.4m £334.2m £232.1m £251.4m £233.4m £266.2m Permanent £173.3m £203.5m Contract FY16 FY17 FY18 FY19 FY20 FY21 FY22 Contract margin %
Slide 34: Historical operating profit and conversion ratio
BUSINESS OVERVIEW Historical operating profit and conversion ratio Adjusted operating profit £77.6m £53.9m £60.0m £60.8m £41.3m £44.9m £31.3m FY16 FY17 FY18 FY19 FY20 FY21 FY22 Adjusted conversion ratio % 16.8% 17.8% 17.1% 18.0% 16.0% 15.6% 10.1% FY16 FY17 FY18 FY19 FY20 FY21 FY22 Note 1: 2019,2020
Slide 35: Effective tax rate bridge
BUSINESS OVERVIEW Effective tax rate bridge (0.2%) 29.8% 29.6% ETR FY21 Profit mix ETR FY22 STHREE.COM 35
Slide 36: Earnings per share bridge
BUSINESS OVERVIEW Earnings per share bridge 0.2p 41.0p 9.0p 31.8p EPS FY21 Increase in profits Change in ETR EPS FY22 STHREE.COM 36
Slide 37: City consensus
BUSINESS OVERVIEW City consensus As at 27 January 2023 Consensus Low High FY22 £424.8m £410.3m £430.6m Net Fees FY23 £445.1m £436.5m £448.7m FY24 £474.5m £461.4m £479.8m FY22 £74.8m £69.6m £76.7m PBT FY23 £79.1m £74.9m £81.4m FY24 £87.1m £80.2m £94.0m FY22 40.7p 38.8p 41.6p EPS (adj basic) FY23 42.3
Slide 38: Shareholder analysis
BUSINESS OVERVIEW Shareholder analysis As at 31 December 2022 Rank Fund Manager Holdings % 1 Kempen Capital Management 13,504,005 10.04% 2 JPMorgan Asset Management 8,061,416 6.00% 3 Littlejohn & Co 7,469,846 5.56% 4 JO Hambro Capital Management 6,927,489 5.15% 5 BlackRock 6,708,593 4.99% 6 Allianz
Slide 39: DACH
DACH Strong performance with net fees up 17% vs 2021 STHREE.COM
Slide 40: DACH
BUSINESS OVERVIEW DACH Strong performance with net fees up 17% vs 2021 Division Sector Revenue Net fees £539.0m £148.9m 29% Contract Permanent 14% 3% 4% Technology Life Sciences up 20% vs FY2021 up 17% vs FY2021 13% Engineering 32% Other 16% 18% 65% 68% 67% 71% Average total headcount NPS 874 FTE 57
Slide 41: DACH
BUSINESS OVERVIEW DACH 35% of group net fees Contractor Order Book £57.1m • Strong performance in the year with net Switzerland Austria fees up 17% YoY (Contract up 22% and Permanent up 6%) £48.1m 6% 5% • Germany, our largest country in the region delivered strong net fee growth of 14% £35.9m driven
Slide 42: EMEA Excl DACH
EMEA Excl DACH Very strong net fee growth up 24% YoY STHREE.COM
Slide 43: EMEA Excl DACH
BUSINESS OVERVIEW EMEA Excl DACH Very strong net fee growth up 24% YoY Division Sector Revenue Net fees £739.4m £156.5m 12% 13% Contract Permanent 14% Technology Life Sciences up 22% vs FY2021 up 24% vs FY2021 13% Engineering Other 24% 50% 50% 24% 87% 13% 88% 12% Average total headcount NPS 989 FTE
Slide 44: EMEA Excl DACH
BUSINESS OVERVIEW EMEA EXCL DACH 36% of group net fees • Net fees grew 24% YoY, with Contract up Contractor Order Book 27% and Permanent up 6%. £75.9m • The Netherlands, our largest country in the region, finished with very strong net fee Other Dubai growth of 34% YoY. Technology was up 5% 36% with
Slide 45: USA
USA Net fees up 13% with strong growth in Contract up 19% STHREE.COM
Slide 46: USA
BUSINESS OVERVIEW USA Net fees up 13% with strong growth in Contract up 19% Division Sector Revenue Net fees £338.2m £111.5m 21% Contract Permanent 10% 17% Technology Life Sciences up 20% vs FY2021 up 13% vs FY2021 25% 10% 16% Engineering Other 26% 30% 75% 48% 79% 43% Average total headcount NPS 539
Slide 47: USA
BUSINESS OVERVIEW USA 26% of group net fees Contractor Order Book £51.6m £48.7m • USA delivered net fee growth of 13% YoY • Strong growth in Contract, up 19%. Permanent was down 8% following our strategic focus on Contract and very strong prior year comparatives, when Life Sciences was £31.8m +6% th
Slide 48: APAC
APAC Japan net fees up 47% vs 2021 STHREE.COM
Slide 49: APAC
BUSINESS OVERVIEW APAC Japan net fees up 47% vs 2021 Division Sector Revenue Net fees £22.8m £13.6m 17% 17% Contract Permanent 17% Technology Life Sciences up 28% vs FY2021 up 42% vs FY2021 15% Engineering Other 7% 47% 51% 32% 83% 83% 29% Average total headcount NPS 156 FTE 36 Net fees (£m) FY21 FY2
Slide 50: APAC
BUSINESS OVERVIEW APAC 3% of group net fees Contractor Order Book £1.4m £1.3m Singapore 31% +12% £0.8m vs 2021 • Net fees up 42% YoY, with Contract up 27% and Permanent up 45%. • Japan, our largest country in the region, 69% saw net fees grow 47% driven by Technology up 32% with increased Nov 2020 N
Slide 51: Group balance sheet
Group balance sheet Robust financial position STHREE.COM
Slide 52: Very strong balance sheet
BUSINESS OVERVIEW Very strong balance sheet Backed by substantial undrawn debt facilities 30 Nov 2022 30 Nov 2021 Net working capital Intangible assets £0.8m £2.5m Permanent £4.1m Property, plant & equipment £5.5m £5.7m Contract £142.9m Net working capital £147.0m £101.9m £147.0m Net lease liabiliti
Slide 53: Cashflow statement
BUSINESS OVERVIEW Cashflow statement 30 Nov 2022 30 Nov 2021 Operating profit £77.6m £60.5m Non cash items £25.4m £20.3m Working capital (£38.6m) (£26.3m) Operating cash flow £64.4m £54.5m Tax (£18.9m) (£16.7m) Capex (£3.7m) (£2.6m) Bank interest / lease principal payments (£14.3m) (£13.3m) LTIPS /
Slide 54: Free cash flow conversion
BUSINESS OVERVIEW Free cash flow conversion Working capital investments represents continued growth in Contract business FY 2022 Uses of free cash £25.4m (£38.6m) £3.7m CAPEX £77.6m £4.9m LTIPs/tracker shares/ £64.4m (£18.9m) other £14.7m (£14.3m) Dividends £31.2m £7.9m Net increase in cash balance
Slide 55: Banking facility
BUSINESS OVERVIEW Banking facility Net cash £65m as at 30 November 2022 Available 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 expi
Slide 56: Capital allocation policy
INTRODUCTION TO STHREE Capital allocation policy Disciplined approach with objective to maximise shareholder value Maintain a strong balance sheet 1. 2. 3. Invest in organic Complete value- Return excess cash growth opportunities enhancing to shareholders acquisitions Maintain a sustainable, through