Sthree Plc · LSE:STEM
Sthree — H1 2022 Earnings Presentation
76 slides from Sthree's earnings presentation, July 2022
Slide 1: Half Year Results 2022
Half Year Results 2022 Presentation for the half year ended 31 May 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
STHREE INVESTOR PRESENTATION Our unique model underpins our success STEM 9% Flexible talent 23% 21% 33% 47% Technology Life Sciences Employed Contractor Independent Contractor Engineering Other Permanent 23% 44% Global Footprint SThree’s business model is positioned to capitalise on an opportunity d
Slide 4: Our consistent strategic focus is driving quality growth
STHREE INVESTOR PRESENTATION Our consistent strategic focus is driving quality growth Record results against Significant operational Market opportunity uncertain economic progress being made in continues to grow backdrop demonstrate line with plan underpinned by strength of strategy structural deman
Slide 5: Very strong profit growth
STHREE INVESTOR PRESENTATION Very strong profit growth Driven by demand for STEM talent and high productivity Net fees Operating profit £203.1m £44.6m up 25% vs 2021 up 62% vs 2021 Contractor order book Closing cash position £181.8m £48.4m up 35% vs May 2021 up 2% vs May 2021 Note 1: Numbers present
Slide 6: Helping to solve the toughest challenges of our time
STHREE INVESTOR PRESENTATION Helping to solve the toughest challenges of our time Digitisation Decarbonisation Demographic Healthcare New ways of changes working STHREE.COM 6
Slide 7: Financial review
Financial review STHREE.COM
Slide 8: Fifth consecutive quarter of +20% net fee growth
FINANCIAL REVIEW Fifth consecutive quarter of +20% net fee growth Net fees 19% ahead of pre-Covid levels Net fees Quarterly YoY net fee growth +29% +25% +29% HY 22 £203.1m +22% +23% HY 21 £164.3m HY 20 £149.9m +1% +0% HY 19 £160.9m -1% Operating profit -7% -12% -14% HY 22 £44.6m Q4 Q1 Q2 Q3 Q4 Q1 Q2
Slide 9: Outperforming the industry through pandemic and recovery
FINANCIAL REVIEW Outperforming the industry through pandemic and recovery Indexed calendar quarter net fee growth rates 133% 116% 100% 86% 61% SThree 77% 23% SThree UK-listed UK-listed 36% 64% staffers staffers Contract Perm CY 2019 Mar FY20 Jun FY20 Sep FY20 Dec FY20 Mar FY21 Jun FY21 Sep FY21 Dec
Slide 10: Strong trading and high productivity drives record first-half profit
FINANCIAL REVIEW Strong trading and high productivity drives record first-half profit Actual LFL HY22 HY21 movement movement Revenue £772.2m £615.1m +26% +27% Net fees £203.1m £164.3m +24% +25% Operating profit £44.6m £28.1m +59% +62% Conversion ratio 22.0% 17.1% +4.9%pts +5.1%pts Profit before tax
Slide 11: Very strong trading performance in the first half
FINANCIAL REVIEW Very strong trading performance in the first half Double digit net fee growth in both quarters Q1 FY22 Q2 FY22 HY22 Contract net fee margin as % of revenue vs vs vs Q1 FY21 Q2 FY21 HY21 21.7% % % % Contract +32 +29 +30 2021: 21.3% 2019 (pre-pandemic): 19.9% % % % Permanent +18 +5 +1
Slide 12: Growth in both independent and employed contractors
FINANCIAL REVIEW Growth in both independent and employed contractors ECM net fees grew 37% YOY HY19 (pre-pandemic) HY21 HY22 22% 23% 26% 26% 31% 33% 74% 74% 77% Contract Contract Contract Employed Contractor (ECM) Independent Contractor 44% 52% 43% Total Contract Permanent Note 1: Employed contracto
Slide 13: Regional and sector split
FINANCIAL REVIEW Regional and sector split Double digit growth achieved in every region and sector Regions Sectors Net fees by region HY22 vs HY21 DACH +24% 3% 9% EMEA excl DACH +28% 3% 9% USA +21% 25% 35% 25% APAC +47% 36% 21% 20% Group +25% 47% 47% Net fees by sector HY22 vs HY21 24% 36% Technolog
Slide 14: Unprecedented levels of productivity driving exceptional margins in H1
FINANCIAL REVIEW Unprecedented levels of productivity driving exceptional margins in H1 Productivity expected to revert towards more normal levels over time but to remain above pre-pandemic levels Productivity Growth driven by: • Remarkable levels of demand • Shift towards Employed +14.2% Contractor
Slide 15: Operating profit up £16.5m driven by very strong H1 net fees
FINANCIAL REVIEW Operating profit up £16.5m driven by very strong H1 net fees £3.7m (£18.3m) £35.1m (£3.9m) £44.6m £28.1m Operating profit Contract Permanent People Other operating Operating profit HY 2021 net fees net fees costs costs HY 2022 Note 1: Numbers presented on an adjusted basis Note 2: H
Slide 16: Strong cash balance despite working capital impact of contractor model
FINANCIAL REVIEW Strong cash balance despite working capital impact of contractor model £12.4m (£32.8m) £44.6m (£15.1m) (£9.0m) (£9.2m) £57.5m Increase in trade debtors/acc income (£37.6m) £48.4m Increase in trade creditors/accruals £10.1m Prepayment for share purchases (£5.2m) Net cash Operating No
Slide 17: Interim Dividend of 5.0p
FINANCIAL REVIEW Interim Dividend of 5.0p DPS interim +67% vs 2021 Expected to align with our current dividend policy of cover in the range of 2.5x to 3.0x for the full year STHREE.COM 17
Slide 18: Growth in contractor order book underpins our continued confidence
FINANCIAL REVIEW Growth in contractor order book underpins our continued confidence Growth across both employed and independent contractors £181.8m £134.8m £101.5m +35% vs 2021 May 2020 May 2021 May 2022 Note 1 :Contractor order book represents value of net fees until contractual end dates, assuming
Slide 19: Key financial takeaways
FINANCIAL REVIEW Key financial takeaways Double digit net fee growth Very strong profit growth Excellent visibility of Strong balance sheet future net fees 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 position Our platform Our markets Our people Leveraging our position at the centre Create a world class operational To be a leader in markets we Find, develop, retain great people of STEM to deliver sustainable value platform through data, tec
Slide 22: 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 72,315 lives 79% growth positively impacted since in renewables business net fees 1 Dec 2019 compared t
Slide 23: Evolving our ambitions for 2024
STRATEGIC PROGRESS AND OUTLOOK Evolving our ambitions for 2024 Market share of STEM Conversion ratio (CR%2) People Planet To grow Group To deliver a sustainable operating To be an employer of choice in the To reduce our carbon footprint on market share profit conversion ratio Professional Services s
Slide 24: Well-placed to build on our position as one of the leaders in STEM
STRATEGIC PROGRESS AND OUTLOOK Well-placed to build on our position as one of the leaders in STEM and continue to deliver for our stakeholders Continuing momentum Global megatrends drive Addition of strategic Confident in a positive building on a record period an increasing demand for investments an
Slide 25: Q&A
Q&A STHREE.COM
Slide 26: Appendix
Appendix STHREE.COM
Slide 27: Financial calendar
STHREE INVESTOR PRESENTATION Financial calendar 2022 2023 19 September Q3 Trading Update 30 January Annual results for the year ended 30 November 2022 14 December FY22 Trading Update 27 STHREE.COM 27
Slide 28: Business overview
Business overview STHREE.COM
Slide 29: Group performance
Group performance Net fees up 25% YoY driven by increased demand for STEM skills STHREE.COM
Slide 30: Group
BUSINESS OVERVIEW Group Net fees up 25% vs 2021 driven by increased demand for STEM skills Revenue Net fees £772.2m £203.1m up 27% vs 2021 up 25% vs 2021 Average total headcount NPS 2,792 FTE 51 up 10% vs 2021 Note 1: Numbers presented on an adjusted basis Note 2: All variances at constant currency
Slide 31: Group
BUSINESS OVERVIEW Group Net fees up 25% vs prior year driven by increased demand for STEM skills Contractor Order Book Geography Division Sector 3% +35% 9% 23% 77% 9% 25% 25% 3% 35% 26% 74% 36% 21% 47% vs 2021 20% 47% 36% 24% 37% 23% Net fees (£m) £203.1m DACH USA Contract Perm Technology Life Scien
Slide 32: Regional and sector split
FINANCIAL REVIEW Regional and sector split Double digit growth achieved in every region and sector Net fees by region Q1 FY22 vs Q2 FY22 vs HY 22 vs Q1 FY21 Q2 FY21 HY21 3% 9% DACH +26% +23% +24% 3% 9% EMEA excl DACH +29% +26% +28% 25% 35% 25% USA +27% +16% +21% 21% 36% 20% APAC +71% +32% +47% 47% 4
Slide 33: Regional and sector split
BUSINESS OVERVIEW Regional and sector split Double digit growth achieved in every large market and sector Net fees YoY Life Technology Engineering Other Total Sciences DACH +31% +10% +27% -17% +24% EMEA excl DACH +29% +18% +23% +41% +28% USA +25% +16% +27% +15% +21% APAC +30% +40% +768% +77% +47% Gr
Slide 34: Cost base analysis
BUSINESS OVERVIEW Cost base analysis Cost base Payroll costs 7% 19% 7% 2% 5% 79% 81% Payroll Advertising Other Sales Other business functions Property IT & Professional STHREE.COM 34
Slide 35: Foreign exchange impact
BUSINESS OVERVIEW Foreign exchange impact Half Year ended Half Year ended YoY exchange 31 May 2022 31 May 2021 rate movement Average Closing Average Closing Average Closing The Group’s net fees and operating EUR € 1.19 1.17 1.14 1.16 -4.3% -1.2% profit decreased by £2.5m and £0.9m respectively, due
Slide 36: Historical net fees and contract margin
BUSINESS OVERVIEW Historical net fees and contract margin Net fees £119.8m £134.4m £148.4m £160.9m £149.9m £164.3m £203.1m £46.1m £41.4m £42.4m £41.7m £36.4m £40.2m £40.1m £157.0m Permanent £106.7m £119.5m £113.5m £121.9m Contract £79.7m £94.2m 2016 2017 2018 2019 2020 2021 2022 Contract margin % 21
Slide 37: Historical operating profit and conversion ratio
BUSINESS OVERVIEW Historical operating profit and conversion ratio Adjusted operating profit £44.6m £24.8m £28.1m £15.3m £19.3m £20.4m £13.9m 2016 2017 2018 2019 2020 2021 2022 Adjusted conversion ratio % 22.0% 15.4% 17.1% 12.8% 14.4% 13.7% 9.2% 2016 2017 2018 2019 2020 2021 2022 Note 1: 2019,2020 a
Slide 38: ETR bridge
BUSINESS OVERVIEW ETR bridge 29.9% (1.6%) (0.5%) 27.8% ETR FY21 Tax provisions Profit mix / ETR HY22 tax losses STHREE.COM 38
Slide 39: EPS bridge
BUSINESS OVERVIEW EPS bridge 1.0p 24.1p 8.7p 14.4p EPS HY21 Increase in profits Change in ETR EPS HY22 STHREE.COM 39
Slide 40: Progress against our ambitions for 2024
STRATEGIC PROGRESS AND OUTLOOK Progress against our ambitions for 2024 Market share of STEM Conversion ratio (CR%1) On track On track To grow Group To deliver a Operating market share by 50% Profit Conversion Ratio of 21-24% Free cash flow (FCF) (CR%2) People and society To drive a free cash To main
Slide 41: City consensus
BUSINESS OVERVIEW City consensus As at 23 June 2022 Consensus Low High FY22 £409.1m £389.4m £415.0m Net Fees FY23 £437.6m £419.4m £445.3m FY24 £466.9m £444.5m £479.5m FY22 £70.4m £66.1m £71.6m PBT FY23 £77.7m £72.7m £80.3m FY24 £86.6m £79.3m £93.9m FY22 36.2p 34.4p 37.4p EPS (adj basic) FY23 39.6p 3
Slide 42: Shareholder analysis
BUSINESS OVERVIEW Shareholder analysis As at 31 May 2022 Rank Fund Manager Holdings % 1 Kempen Capital Management 12,392,738 9.27% 2 JO Hambro Capital Management 8,248,497 6.17% 3 BlackRock 6,905,070 5.16% 4 Allianz Global Investors 5,978,676 4.47% 5 JPMorgan Asset Management 5,883,054 4.40% 6 Polar
Slide 43: DACH
DACH Strong performance with net fees up 24% vs 2021 STHREE.COM
Slide 44: DACH
BUSINESS OVERVIEW DACH Strong performance with net fees up 24% vs 2021 Division Sector Revenue Net fees £258.1m £70.5m 29% 71% Contract Permanent 13% 3% 5% Technology Life Sciences up 32% vs 2021 up 24% vs 2021 34% 13% Engineering 66% Other 16% 18% 64% 68% Average total headcount NPS 848 FTE 57 Net
Slide 45: DACH
BUSINESS OVERVIEW DACH 35% of group net fees Contractor Order Book £59.6m Austria Switzerland 5% • £46.8m 6% Strong performance at the half year with net fees up 24% YoY (Contract up 32% and Permanent up 8%) +27% £32.1m vs 2021 • Engineering was up 27%, with demand for construction management and au
Slide 46: EMEA Excl DACH
EMEA Excl DACH Very strong performance in the Netherlands with net fees up 41% vs 2021 STHREE.COM
Slide 47: EMEA Excl DACH
BUSINESS OVERVIEW EMEA Excl DACH Very strong performance in the Netherlands with net fees up 41% vs 2021 Division Sector Revenue Net fees £348.5m £74.6m 12% 14% 88% 86% Contract Permanent 14% 12% Technology Life Sciences up 25% vs 2021 up 28% vs 2021 Engineering Other 24% 24% 50% 50% 14% 12% Average
Slide 48: EMEA Excl DACH
BUSINESS OVERVIEW EMEA EXCL DACH 37% of group net fees Contractor Order Book £70.9m Other Dubai 5% Belgium 4% • Net fees grew 28% YoY, with Contract up 7% 31% and Permanent up 11% £47.8m France +48% 7% • The Netherlands, our largest country in the £38.1m vs 2021 region, finished with very strong net
Slide 49: USA
USA Net fees up 21% with strong growth in Contract up 28% STHREE.COM
Slide 50: USA
BUSINESS OVERVIEW USA Net fees up 21% with strong growth in Contract up 28% Division Sector Revenue Net fees £155.1m £51.7m 22% Contract Permanent 10% 10% 16% 16% Technology Life Sciences up 27% vs 2021 up 21% vs 2021 Engineering 26% 28% Other 26% 74% 48% 46% 78% Average total headcount NPS 522 FTE
Slide 51: USA
BUSINESS OVERVIEW USA 25% of group net fees Contractor Order Book £49.7m £39.2m • USA delivered net fee growth of 21% YoY £30.5m +27% • Life Sciences, our largest sector in the USA (46% of net fees), saw net fees grow 16%, driven vs 2021 by demand for roles within clinical operations, quality assura
Slide 52: APAC
APAC Japan net fees up 44% vs 2021 STHREE.COM
Slide 53: APAC
BUSINESS OVERVIEW APAC Japan net fees up 44% vs 2021 Division Sector Revenue Net fees £10.5m £6.3m 16% Contract Permanent 17% 13% 48% Technology Life Sciences up 30% vs 2021 up 47% vs 2021 17% Engineering 6% 55% Other 30% 83% 29% 84% Average total headcount NPS 149 FTE 40 Net fees (£m) FY21 FY21 up
Slide 54: APAC
BUSINESS OVERVIEW APAC 3% of group net fees Contractor Order Book £1.6m Singapore +73% 29% • Net fees up 47% YoY, with Contract up £0.9m vs 2021 28% and Permanent up 51% £0.8m • Japan, our largest country in the region, saw net fees grow 44% driven by Technology up 30% and Life Sciences up 15% May 2
Slide 55: Group balance sheet
Group balance sheet Very strong liquidity position STHREE.COM
Slide 56: Very strong balance sheet
BUSINESS OVERVIEW Very strong balance sheet Backed by substantial undrawn debt facilities 31 May 2022 30 Nov 2021 Net working capital Intangible assets £0.8m £2.5m Permanent £5.0m Property, plant & equipment £5.8m £5.7m Contract £123.9m Net working capital £128.9m £101.9m £128.9m Net lease liabiliti
Slide 57: Cashflow statement
BUSINESS OVERVIEW Cashflow statement 31 May 2022 31 May 2021 Operating profit £44.6m £27.8m Non cash items £12.4m £10.3m Working capital (£32.8m) (£17.6m) Operating cash flow £24.2m £20.5m Tax (£15.1m) (£9.7m) Capex (£1.9m) (£1.6m) Bank interest / lease principal payments (£7.1m) (£7.0m) LTIPS / Tra
Slide 58: Free cash flow conversion
BUSINESS OVERVIEW Free cash flow conversion Continued growth in Contract business impacts FCFCR % HY 2022 Uses of free cash £12.4m (£32.8m) £1.9m CAPEX £44.6m £5.2m LTIPs/tracker shares/ other £4.0m £24.2m (£15.1m) Dividends (£9.1m) (£7.1m) Net decrease in cash £2.0m balance Operating profit Non-cas
Slide 59: Banking facility
BUSINESS OVERVIEW Banking facility Net cash £48m as at 31 May 2022 Available facility £50m RCF + £5m overdraft + £20m accordion Drawn facility Nil Interest rate SONIA + 1.3%-2.0% Covenants: Interest cover 4:1 EBITDA / interest Covenants: Leverage ratio 3:1 Net debt / EBITDA Term £50m RCF expires May
Slide 60: Introduction to SThree
Introduction to SThree STHREE.COM
Slide 61: Helping to solve the toughest challenges of our time
INTRODUCTION TO STHREE Helping to solve the toughest challenges of our time Digitisation Decarbonisation Demographic Healthcare New ways of changes working STHREE.COM 61
Slide 62: The future of work is changing
INTRODUCTION TO STHREE The future of work is changing What we learnt from insights from 5,000 STEM specialists across the US, UK, Germany, Netherlands and Japan Contract in Reward the Flexible Broadening A positive demand top priority working a must the search impact is attractive STHREE.COM 62
Slide 63: Our unique model underpins our success
INTRODUCTION TO STHREE Our unique model underpins our success STEM 9% Flexible talent 23% 21% 33% 47% Technology Life Sciences Employed Contractor Independent Contractor Engineering Other Permanent 23% 44% Global Footprint SThree’s business model is positioned to capitalise on an opportunity driven
Slide 64: Record performance
INTRODUCTION TO STHREE Record performance Strong growth vs 2021 Revenue Net fees £772.2m £203.1m up 27% vs 2021 up 25% vs 2021 Adjusted operating profit Adjusted basic EPS £44.6m 24.1p up 62% vs 2021 up 71% vs 2021 Note 1: Numbers presented on an adjusted basis Note 2: All % movements on constant cu
Slide 65: Bringing skilled people together to build the future
INTRODUCTION TO STHREE Bringing skilled people together to build the future We are the only global pure-play STEM specialist Science Technology Engineering Mathematics Vision To be the number one STEM talent provider in the best STEM markets 65 STHREE.COM 65
Slide 66: Delivering STEM talent in the most important STEM markets
Delivering STEM talent in the most important STEM markets STHREE.COM 66
Slide 67: We are global
INTRODUCTION TO STHREE We are global Delivering STEM talent in the most important STEM markets Global footprint Net fees mix USA DACH EMEA excluding DACH APAC (Focus on Life Sciences (Focus on Technology (Focus on Technology (Focus on Technology and Engineering) and Life Sciences) and Engineering) a
Slide 68: Multi-brand go-to-market approach
Multi-brand go-to- market approach STHREE.COM
Slide 69: We operate primarily through our four largest specialist brands
INTRODUCTION TO STHREE We operate primarily through our four largest specialist brands Global leader in the provision of pharmaceuticals, medical One of the most dynamic and highly regarded specialist • SThree operates a group of specialist devices and biotechnology recruitment IT recruitment compan
Slide 70: How we operate
INTRODUCTION TO STHREE How we operate Our business model covers three revenue streams Three options to serve client needs HY22 net fee mix Independent contractors • Self employed; invoices paid by SThree • Recurring fees to client for the duration of the contract 23% Employed Contractors 33% • Emplo
Slide 71: How we operate
INTRODUCTION TO STHREE How we operate Our business model covers three revenue streams Why we focus on Contract • Particularly suited to STEM staffing market • Higher lifetime value and profitability • More predictable and visible earnings • High barriers to entry • Growth in margin at scale • Resili
Slide 72: Ensuring Satisfied Clients and Candidates
INTRODUCTION TO STHREE Ensuring Satisfied Clients and Candidates Measure of our success seen in our Net promoter score Build candidate communities Serve our customers Innovate for an outstanding Very high NPS customer experience Source high volume and specialist STEM talent via innovative digital ma
Slide 73: Business model
INTRODUCTION TO STHREE Business model 1. 2. 3. 4. 5. We build We understand We earn fees We reinvest We build a strong and meet the and grow capital wisely sustainable relationships changing sustainable to fund future through with our demands of free cash flows continued STEM candidates our clients
Slide 74: Investment case
INTRODUCTION TO STHREE Investment case Focus on mega trends Global reach, with Strong track record Focused on having Responsible business STEM skills are at the forefront of significant market of cash generation, a best-in-class A purpose-driven business with a well change across the world. growth p
Slide 75: 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 76: Our purpose in action
STHREE INVESTOR PRESENTATION Our purpose in action Industry-leading Fortune 500 global Confidential Confidential healthcare client Engineering Europe-based start-up Life Sciences As well as connecting STEM experts with We worked with a Europe-based start-up that The client needed a partner who would