Sthree Plc · LSE:STEM
Sthree — H1 2023 Earnings Presentation
71 slides from Sthree's earnings presentation, July 2023
Slide 1: Half Year Results 2023
Half Year Results 2023 Presentation for the half year ended 31 May 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 S Flexible 8% 19% 19% 36% talent E 24% 81% Technology Contract Employed Contractor (ECM) Life Sciences Independent Contractor Engineering Total Contract Other 49% 45% Permanent T Note 1: Business m
Slide 4: Resilient performance against challenging macro-economic environment
STHREE INVESTOR PRESENTATION Resilient performance against challenging macro-economic environment Resilient performance against tough comps Over 75% of FY23 Consensus net fees booked Net fees Contractor order book £208.6m £190.3m down -2%vs HY22 Flat vs May 2022 HY22 up +25% vs HY21 Increased invest
Slide 5: Financial review
Financial review STHREE.COM
Slide 6: Net fees broadly in line with post-pandemic record performance in HY22
FINANCIAL REVIEW Net fees broadly in line with post-pandemic record performance in HY22 Operating profit conversion ratio reflects normalised productivity and strategic investments in talent and technology Net fees Operating profit and OPCR HY23 £208.6m HY23 £38.1m 18.3% Post - Covid HY22 £203.1m HY
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% 124% 120% 109% 100% 86% 61% SThree 81% 19% SThree UK-listed UK-listed 38% 62% staffers staffers CY 2019 Mar FY20 Jun FY20 Sep FY20 Dec FY20 Mar FY21 Jun F
Slide 8: Operating profit includes strategic investments for future growth
FINANCIAL REVIEW Operating profit includes strategic investments for future growth Actual LFL HY23 HY22 movement movement Revenue £825.2m £772.2m +7% +2% Net fees £208.6m £203.1m +3% -2% Operating profit £38.1m £44.6m -15% -22% Conversion ratio 18.3% 22.0% -3.7%pts -4.5%pts Profit before tax £38.5m
Slide 9: Resilient net fee performance driven by focus on Contract
FINANCIAL REVIEW Resilient net fee performance driven by our strategic focus on Contract Contract business now represents 81% of Group net fees HY23 vs HY22 Contract net fees as % of Contract revenue 21.7% Contract +3% 2022: 21.7% 2019 (pre-pandemic): 19.9% Permanent -19% Permanent net fees as % of
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 6% YOY HY19 (pre-pandemic) HY22 HY23 19% 22% 23% 26% 33% 36% 74% 77% 81% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 45% 44% Total Contract 52% Permanent Note
Slide 11: 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 HY23 vs HY22 DACH - 5% 8% Netherlands & Spain +5% 5% 9% Rest of Europe -2% 23% 36% 25% 35% USA -11% 24% 21% Mi
Slide 12: HY23 productivity normalising
FINANCIAL REVIEW HY23 productivity normalising Down compared to exceptional levels in HY22, though remains 28% above pre-pandemic levels in HY19 Productivity Productivity impacted by • Uncertain macro-economic environment -7% vs 2022 impacting new placement activity, especially in Life Sciences • 5%
Slide 13: Technology Improvement Programme spend on track
FINANCIAL REVIEW Technology Improvement Programme spend on track Reflected in the reported operating profit conversion ratio, with a step-up in costs forecast for H2 Total expenditure £30m - £35m HY23 HY22 £9m- Underlying OP (pre-TIP) £40.7m £44.6m £10m £6m- Underlying OPCR 19.5% 22.0% £8m TIP Opex
Slide 14: Strategic investments in talent and technology impacting operating profit
FINANCIAL REVIEW Strategic investments in talent and technology impacting operating profit £13.0m (£7.5m) (£6.6m) £44.6m (£2.6m) (£2.8m) £38.1m Operating profit Contract Permanent People Technology Other operating Operating profit HY 2022 net fees net fees costs improvement costs HY 2023 programme S
Slide 15: Strong cash performance
FINANCIAL REVIEW Strong cash performance £6.3m (£9.6m) £10.7m (£10.7m) £38.1m (£27.8m) Decrease in trade debtors/acc income £28.6m Decrease in trade creditors/accruals/provisions (£22.3m) £72.4m £65.4m Net cash Operating Non-cash Working Tax/ Lease principal/ Shares, dividends Net cash Nov 2022 prof
Slide 16: Strong balance sheet supports disciplined capital allocation
FINANCIAL REVIEW Strong balance sheet supports disciplined capital allocation DPS interim 5.0p HY22: 5.0p Flat vs HY22 Expected to align within our dividend policy of 2.5x to 3.0x cover for the full year STHREE.COM 16
Slide 17: Strong contractor order book providing good visibility
FINANCIAL REVIEW Strong contractor order book providing good visibility Contractor order book flat YoY, however, remains at a record high and underpins our near-term visibility £191.0m £190.3m £141.7m Flat vs 2022 Nov 2020 Nov 2021 Nov 2022 May 2021 May 2022 May 2023 Note 1 :Contractor order book re
Slide 18: Key financial takeaways
FINANCIAL REVIEW Key financial takeaways Net fees broadly in line with post-pandemic peak Resilient net fee Profits reflect strategic Good visibility of Robust balance sheet performance investments to deliver Future net fees with dividend future growth maintained STHREE.COM 18
Slide 19: Strategic progress and outlook
Strategic progress and outlook STHREE.COM
Slide 20: 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 21: Places: Unique mix of skills and markets
STRATEGIC PROGRESS AND OUTLOOK Places: Unique mix of skills and markets guided by market investment model STEM Global £112bn ROW: £20bn Higher net fee growth since FY19 than our peer group in each Core Market SThree Other: 82% USA: £48bn £15bn of global STEM market by revenue Germany: £8bn Japan: £1
Slide 22: Platform: Technology Improvement Programme
To hear more about our Technology Improvement STRATEGIC PROGRESS AND OUTLOOK Programme, right click on the image and select Platform: Technology Improvement Programme "open link in new tab” Delivering the future of STEM staffing through insight, innovation and operational excellence Single coherent
Slide 23: People: uniting our global teams
STRATEGIC PROGRESS AND OUTLOOK People: uniting our global teams Progress Focus in H2 Building a supportive Future Culture environment programme Hybrid working, performance Activating and embedding a new culture, leadership training set of company values, evolving our culture to being one that has En
Slide 24: Position: Thought leadership
STRATEGIC PROGRESS AND OUTLOOK Position: Thought leadership How the STEM world evolves How 2,300 experienced STEM professionals in the UK, US, Germany, Netherlands, and Japan are adapting their expectations in a rapidly changing work environment 81% of STEM respondents are choosing personal purpose
Slide 25: ESG: Empowering a sustainable future through STEM
STRATEGIC PROGRESS AND OUTLOOK ESG: Empowering a sustainable future through STEM Group ESG ambitions to 2024 Positively impact 150,000 lives Double the share of our SBTi validated Net Zero Targets global clean energy business announced in H1 106,116 lives positively impacted since 1 Dec 2019 132% gr
Slide 26: 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 Early positive momentum approach to strategic an increasing demand for investments and initiative
Slide 27: Q&A
Q&A STHREE.COM
Slide 28: Appendix
Appendix STHREE.COM
Slide 29: Financial calendar
APPENDIX Financial calendar 2023 2024 19 September FY23 Q3 Trading Update 30 January Annual results for the year ended 30 November 2023 14 December FY23 Full Year Trading Update 29 STHREE.COM 29
Slide 30: Business overview
Business overview STHREE.COM
Slide 31: Group performance
Group performance Resilient net fees performance, down 2% YoY driven by the execution of our strategy and demand for STEM skills STHREE.COM
Slide 32: Group performance: net fees down 2%
BUSINESS OVERVIEW Group performance Net fees down 2% vs prior year driven by the execution of our strategy and demand for STEM skills Revenue Net fees £825.2m £208.6m up 2% vs 2022 down 2% vs 2022 Average total headcount NPS 2,943 FTE 49 up 5% vs 2022 Note 1: Numbers presented on an adjusted basis N
Slide 33: Group performance: net fees by region, service and skill
BUSINESS OVERVIEW Group performance Net fees down 2% vs prior year with resilience provided by execution of our strategy Contractor Order Book Region Service Skill Flat 5% 8% 19% 5% 9% 23% 23% 36% 25% 35% 24% 21% vs 2022 47% 49% 17% 77% 23% 17% 18% 81% 19% Net fees (£m) 19% HY23 £208.6m DACH Netherl
Slide 34: 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% -21% +16% -19% - USA -12% -23% +21% -44% -11% Rest of Europe -1% -11% - +9% -2% Netherlands & Spain +7% -14% +5% +7% +5% Middle East &
Slide 35: Cost base analysis
BUSINESS OVERVIEW Cost base analysis Cost base Payroll costs 6% 9% 21% 2% 5% 78% 79% Payroll Advertising Other Sales Other business functions Property IT & Professional STHREE.COM 35
Slide 36: Foreign exchange impact
BUSINESS OVERVIEW Foreign exchange impact Half Year ended Half Year ended YoY exchange 31 May 2023 31 May 2022 rate movement Average Closing Average Closing Average Closing The Group’s net fees and operating profit increased by £9.1m and £3.3m EUR € 1.14 1.16 1.19 1.17 +4.3% +0.9% respectively, due
Slide 37: Historical net fees and contract margin
BUSINESS OVERVIEW Historical net fees and contract margin Net fees £134.4m £148.4m £160.9m £149.9m £164.3m £203.1m £208.6m £46.1m £38.6m £41.4m £42.4m £41.7m £36.4m £40.2m £157.0m £170.0m Permanent £106.7m £119.5m £113.5m £121.9m Contract £94.2m 2017 2018 2019 2020 2021 2022 2023 Contract margin % 2
Slide 38: Historical operating profit and conversion ratio
BUSINESS OVERVIEW Historical operating profit and conversion ratio Adjusted operating profit £44.6m £38.1m £24.8m £28.1m £19.3m £20.4m £13.9m HY17 HY18 HY19 HY20 HY21 HY22 HY23 Adjusted conversion ratio % 22.0% 17.1% 18.3% 14.4% 13.7% 15.4% 9.2% HY17 HY18 HY19 HY20 HY21 HY22 HY23 Note 1: 2019,2020 a
Slide 39: Effective tax rate bridge
BUSINESS OVERVIEW Effective tax rate bridge (1.5%) 29.6% 28.1% ETR FY22 Profit mix ETR HY23 STHREE.COM 39
Slide 40: Earnings per share bridge
BUSINESS OVERVIEW Earnings per share bridge 24.1p (3.2p) 0.1p 21.0p EPS HY22 Decrease in profits Change in ETR EPS HY23 STHREE.COM 40
Slide 41: City consensus
BUSINESS OVERVIEW City consensus As at June 2023 Consensus Low High FY23 £422.2m £413.1m £445.3m Net fees FY24 £445.8m £434.4m £476.5m FY25 £473.5m £457.2m £493.2m FY23 £71.6m £69.2m £74.9m PBT FY24 £79.3m £75.1m £80.8m FY25 £93.0m £90.1m £99.2m FY23 38.8p 37.0p 41.8p EPS (adj basic) FY24 42.4p 40.2
Slide 42: Shareholder analysis
BUSINESS OVERVIEW Shareholder analysis As at 30 June 2023 Rank Fund Manager Holdings % 1 Kempen Capital Management 14,972,876 11.13% 2 JO Hambro Capital Management 7,997,462 5.95% 3 JPMorgan Asset Management 7,965,132 5.92% 4 Littlejohn & Co 6,617,312 4.92% 5 BlackRock 6,559,521 4.88% 6 Allianz Glob
Slide 43: DACH
DACH STHREE.COM
Slide 44: DACH
BUSINESS OVERVIEW DACH Net fees remain flat YoY with growth in Contract, up 1% and Permanent down 3% Service Skill Revenue Net fees £264.5m £74.5m 28% Contract Permanent 16% 3% 3% Technology Life Sciences down 4% vs 2022 flat vs 2022 13% Engineering 29% Other 16% 13% 68% 71% 68% 72% Average total he
Slide 45: DACH
BUSINESS OVERVIEW DACH 36% of Group net fees Contractor Order Book £62.5m £61.8m Switzerland Austria 7% 5% • Net fees for the half year remained flat YoY £49.1m (Contract up 1% and Permanent down 3%) • Germany, our largest country in the region -1% saw net fees decline by 1% driven by vs 2022 Techno
Slide 46: USA
USA STHREE.COM
Slide 47: USA
BUSINESS OVERVIEW USA Net fees decline 11% YoY with Contract down 2% Service Skill Revenue Net fees £164.0m £49.4m 14% Contract Permanent 6% 16% Technology Life Sciences down 2% vs 2022 down 11% vs 2022 22% 10% 16% Engineering Other 38% 28% 78% 46% 40% 86% Average total headcount NPS 509 FTE 51 Net
Slide 48: USA
BUSINESS OVERVIEW USA 23% of Group net fees Contractor Order Book £53.4m £48.3m £42.0m • USA saw net fees decline 11% YoY • Contract, which represents 86% of net fees, was down 2% YoY driven by Life -9% Sciences, down 16% YoY in line with the market conditions for that sector vs 2022 • This was part
Slide 49: Rest of Europe
Rest of Europe STHREE.COM
Slide 50: Rest of Europe
BUSINESS OVERVIEW Rest of Europe Net fees decline 2% YoY with Contract up 5% Service Skill Revenue Net fees £197.2m £35.2m 6% 12% Contract Permanent 13% Technology Life Sciences up 3% vs 2022 down 2% vs 2022 12% Engineering Other 13% 12% 56% 56% 20% 88% 18% 94% Average total headcount NPS 542 FTE 53
Slide 51: Rest of Europe
BUSINESS OVERVIEW Rest of Europe 17% of Group net fees Contractor Order Book £31.3m Ireland £29.5m Luxembourg 2% 3% • Net fees decline 2% YoY. France 15% • Contract, which represents 94% of net £21.0m fees for the region, grew 5%, with +6% Permanent declining 48%, driven by both market conditions an
Slide 52: Netherlands & Spain
Netherlands & Spain STHREE.COM
Slide 53: Netherlands & Spain
BUSINESS OVERVIEW Netherlands & Spain Net fees up 5% YoY Service Skill Revenue Net fees £177.5m £39.4m 7% 9% Contract Permanent 9% Technology Life Sciences up 13% vs 2022 up 5% vs 2022 9% Engineering Other 49% 50% 36% 36% 91% 6% 93% 5% Average total headcount NPS 436 FTE 36 Net fees (£m) FY21 FY21 H
Slide 54: Netherlands & Spain
BUSINESS OVERVIEW Netherlands & Spain 19% of Group net fees Contractor Order Book • Net fees up 5% YoY, with Contract up 7% and Permanent down 19%. £45.5m £41.9m Spain • The Netherlands, which represents 95% of the region, saw net fee growth of 3% 5% driven by Technology up 3% with higher demand for
Slide 55: Middle East & Asia
Middle East & Asia STHREE.COM
Slide 56: Middle East & Asia
BUSINESS OVERVIEW Middle East & Asia Net fees up 6% YoY with Contract up 52% Service Skill Revenue Net fees £22.0m £10.2m Contract Permanent Technology Life Sciences up 10% vs 2022 up 6% vs 2022 28% Engineering 27% 33% 39% 31% Other 40% 61% 73% 20% 12% 9% 27% Average total headcount NPS 189 FTE 24 N
Slide 57: Middle East & Asia
BUSINESS OVERVIEW Middle East & Asia 5% of Group net fees Contractor Order Book £3.8m Singapore £3.3m 8% • Net fees up 6% YoY, with Contract up 52% £2.5m and Permanent down 10%. -11% vs 2022 • Japan, which represents 43% of the region, 49% was up 2% YoY driven by Engineering due Japan to demand for
Slide 58: Group balance sheet
Group balance sheet Robust financial position STHREE.COM
Slide 59: Very strong balance sheet
BUSINESS OVERVIEW Very strong balance sheet Backed by substantial undrawn debt facilities 31 May 2023 30 Nov 2022 Net working capital Intangible assets £2.7m £0.8m Permanent £2.6m Property, plant & equipment £4.8m £5.5m Contract £130.2m Net working capital £132.8m £147.0m £132.8m Net lease liabiliti
Slide 60: Cashflow statement
BUSINESS OVERVIEW Cashflow statement 31 May 2023 31 May 2022 Operating profit £38.1m £44.6m Non-cash items £10.7m £12.4m Working capital £6.3m (£32.8m) Operating cash flow £55.1m £24.2m Tax (£10.2m) (£15.1m) Capex (£3.0m) (£1.9m) Bank interest / lease principal payments (£7.1m) (£7.1m) LTIPS / Track
Slide 61: Free cash flow conversion
BUSINESS OVERVIEW Free cash flow conversion HY 2023 Uses of free cash £3.0m CAPEX £6.3m £55.1m (£10.2m) £7.3m £10.7m LTIPs/tracker shares/ (£7.1m) other £38.1m £20.5m Dividends £37.8m £7.0m Net increase in cash balance Operating profit Non-cash items Working capital Operating cash flow Tax paid Bank
Slide 62: Banking facility
BUSINESS OVERVIEW Banking facility Net cash £72.4m as at 31 May 2023 Total facility £50m RCF + £5m overdraft + £30m accordion Drawn facility £1.8m 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 J
Slide 63: Capital allocation policy
BUSINESS OVERVIEW 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-the-
Slide 64: Strategic progress
Strategic progress STHREE.COM
Slide 65: Our strategic pillars
BUSINESS OVERVIEW 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 to deliver data, technology a
Slide 66: Significant strategic and operational progress being made in line with plan
BUSINESS OVERVIEW Significant strategic and operational progress being made in line with plan Technology Increased focus Pricing discipline Used our Position at centre Improvement and reduced applied, leadership position of STEM has Programme complexity in strengthening our to grow market enabled us
Slide 67: Position: Our purpose in action
BUSINESS OVERVIEW Position: Our purpose in action Priva innovates with IT professionals provided by SThree brand, Computer Futures The Challenge The Solution The Results Priva is a global market leader in high- In close collaboration with Computer With the support of Computer tech greenhouses and a
Slide 68: Position: our purpose in action
BUSINESS OVERVIEW Position: our purpose in action Real Staffing delivering custom staffing solutions to a global medical devices business The Challenge The Solution The Results A Fortune 500 medical devices Each recruiter became an expert in a Through positive feedback and business needed a highly-t
Slide 69: Position: supporting a utility scale wind farm
BUSINESS OVERVIEW Position: supporting a utility scale wind farm Progressive Recruitment supporting a utility scale wind farm The Challenge The Solution The Results A global renewable energy SThree brand Progressive mobilised to In addition to excellent skill-set construction company manages a provi
Slide 70: ESG: Empowering a sustainable future through STEM
BUSINESS OVERVIEW ESG: Empowering a sustainable future through STEM Committing to science-based We have a clear roadmap to achieve our target: net-zero Scope 1& 2 100% clean energy in our 100% clean fleet by 2030, Transition to a offices by 2030, through partnering with suppliers to low energy offic
Slide 71: s|three
s|three®