SThree : FY25 Full Year Results Transcript

About this update from Sthree Plc

SThree plc Full Year Results 2025 | Transcript 27 th January 2026 - We support organisations as their workforces evolve, placing the STEM skills they need to stay competitive. And because this work is often project-based, fast-moving and flexible, it naturally aligns with Contract. Today, Contract accounts for 84% of the Group. It gives us a more resilient, more profitable revenue stream with better visibility, and it's a real point of differentiation for us. If I was to summarise the year in just a few key words they would be, resilience, improvement, and disciplined execution. I don't need to remind anyone of the persistently challenging global talent markets, but despite this, we delivered on the expectations we set at the start of the year, and we have delivered growth in two of our top five countries, USA and Japan. The standout success for us this year is the conclusion of the TIP rollout across all 11 of our countries. This marks a pivotal milestone in our journey. Few organisations can point to a programme of this scale completing on time, within budget and, importantly delivering to an enhanced scope. I can't overstate how proud I am of what we have achieved together over the past three years. We now have a fully integrated, end-to-end digital backbone that drives innovation, accelerates upgrades and importantly elevates the experience for clients and candidates. It's a game-changing advantage, companies that haven't invested yet risk falling behind as the pace accelerates. We sit here today faster, smarter, and more adaptable. From a macro perspective, a broader recovery is yet to materialise, particularly in Europe, however we closed the year with stronger new business momentum, particularly in key markets like the USA, a clear signal of the opportunities ahead. In addition, we start FY26 currently seeing our contract renewal period on track, underpinning our rebased expectations for the new year. With the global rollout of TIP complete, I want to take a moment to reflect on our journey, and how SThree has become a stronger, more focused business than the one I took over in 2022. One of the many benefits of TIP is its capabilities that have driven us to scrutinise every aspect of our business, from our proposition and strategy, to our people and processes, helping us drive real improvements right across the organisation. Looking at each of our strategic pillars. Within Places, since early 2023 we have been intentionally rebalancing towards a more focused footprint, guided by our 'Market Investment Model' to identify where our capabilities and the market opportunity are most aligned. This disciplined approach has enabled us to deploy resources more effectively, strengthen our competitive position, and ensure that we are investing in the right markets with the g reatest potential. Within Customers, we have been focused on driving deeper client engagement and stronger candidate relationships, becoming more client-centric. We are increasing our focus on large enterprise accounts and 2 refining our account management approach to enable deeper penetration of our strategic accounts, with early positive results. Within People, TIP is enabling us to run our global operations more cohesively and consistently on one unified system. By consolidating multiple legacy systems, our leaders now have access to clean, reliable data to inform decision-making and workforce planning. And we now have harmonised people processes right across the Group, making the business more efficient and better able to scale. Within Proposition, SThree now also looks and feels a lot different. Bringing our go to market brands together under the strength and endorsement of the SThree parent brand is sharpening our position as the trusted global partner and enables our people and business to be more closely aligned. And today, we have an evolving and broad portfolio of STEM workforce solutions, including the capability launched this year to place both contract and permanent roles with full compliance in up to 145 countries. And finally, on Platform. I will leave Nick to deep-dive in more detail on this later, but TIP has not only modernised SThree's technology foundations, it has also redefined how the organisation competes. By rebuilding our core infrastructure on a unified, cloud-based architecture, it has created the platform for complementary next generation technology, including agentic AI, which could further enable our people through truly innovative tools and processes. Looking at our progress through this lens has challenged us to reflect and to question what truly changed. It's clear we haven't stood still. Even in a macro environment that might have encouraged caution, we have made bold changes that will benefit us for years to come. Today, we have the technology, the foundations of the operating model and the financial profile to g row at scale. I'll now pass over to Andy to talk us through the financials. Andy Beach: Thank you very much, Timo. Let's start with a summary of the of the full year performance. Net fees are down 12% year-on-year on a constant currency basis. Pleasingly, the rate of decline improved sequentially quarter-on-quarter through the year, supported by the US, our second largest country, returning to growth after two years of decline. Contract, which represents 84 0 / of net fees, declined 12%, as softness in new business activity earlier in the year outweighed the benefits of the recent improvement and consistently resilient contract extensions. Contract performance in the US was a notable highlight, returning to growth this year, and helping to partially mitigate softer performances in both Germany and the Netherlands. Permanent, which is a smaller part of our business, declined 9 O /, reflecting challenging market conditions across most of our regions. This was still a marked improvement on the rate of decline in the prior year, supported by strong growth in the US and Japan this year. Operating profit for the year was E26.1m, which is down 60 O / on a constant currency basis. This primarily reflects the effect of our operational gearing on lower net fees across key markets, partially offset by disciplined management of operating costs and the realisation of operational efficiencies. This has resulted in a conversion ratio, the ratio of operating profit to net fees, of 8.1%. Profit before tax is £25.5m, down 62% YoY, reflecting the lower Operating Profit and higher net finance costs, driven by lower interest income earned on the Group's bank deposits. We continue to index calendar quarter net fee performance since 2019 the last full year before the pandemic to show more clearly our performance compared to other staffing businesses. As the chart shows, we are less cyclical, which we believe is due to our strategic focus on flexible talent and STEM. We clearly outperformed the market through Covid and over the last three years we have sustained that outperformance. This shows that we are less volatile through periods of market disruption, with our Contract order book providing a runway of Contract net fees due to be recognised as they are earned on a month-by-month basis over the life of a contract. As we have seen historically, when markets recover and new placement activity increases, the recovery in net fees tends to be smoother and from a higher overall level, resulting in a more even, through the cycle net fees profile compared to Permanent-dominant businesses where net fees are recognised almost immediately. Overall this demonstrates that we have the right strategy and that our business is high quality through the cycle. Looking at the regional and skill mix for the period. We have critical mass and a well-diversified business across key STEM markets and skill verticals. The first ring chart shows the split by region, with DACH remaining the largest region in the group, representing 33% of net fees. Looking to the far right, you can see net fees were lower in three of our five regions with a partial offset from growth delivered in the USA and Middle East & Asia. The second ring chart shows our strong and unique position in providing STEM skills. Technology continues to be our largest skill and it represents 45 O / of net fees. Engineering, our second largest skill, declined 6% year-on-year, against a strong prior year performance. Encouragingly, within this vertical, our energy business continues to perform strongly, growing 5% year-on-year and now accounting for 19% of Group net fees. We have also delivered growth of 7% year-on-year in our Other segment, which reflects increased demand for Banking and Finance roles, particularly in the US and Belgium. This was offset by softer demand for skills in Technology and Life Sciences reflecting the ongoing challenging trading environment throughout the year. We continue to benefit from the ongoing trend towards flexible working. This slide looks at our net fees by service. Our contract business can be split between independent contractors and employed contractors. The most notable shift, over the last few years, has been the trend towards the employed contractor model, or ECM, which has grown from 23% of net fees in FY19 to 41% of net fees in FY25. This is significant because our ECM segment generates net fee margins around 30 to 40% higher than those generated by independent contractors, as our clients are willing to pay for the risk and complexity that we assume on their behalf. With the roll-out of our new future ready digital infrastructure, there will naturally be fewer manual touchpoints, eliminating the need to constantly increase headcount to service our contractors, thereby helping us to achieve higher profit margins and scale more efficiently. Additionally, although acting as the employer of record, which is what we do with our ECM offering, is not a service unique to SThree, it remains out of reach for most sub-scale recruiters due to the high barriers to entry, driven by the complexity of compliance, operational infrastructure, and the balance sheet strength required to support it. Where SThree stands apart from larger industry peers is in our comparatively higher net fee exposure to ECM, further reinforced by our focus on STEM disciplines. Looking now at the future visibility of our Contract business. The contractor order book represents the value of contracts written up to the contractual end date, assuming that all contracted hours are worked. The book was down only 2% YoY reflecting the recently improved new placement activity and our consistently resilient extensions performance. Even with the decline, the Order Book continues to provide us with sector- leading forward visibility compared to Permanent focused staffing businesses, with the equivalent of around 5 months' worth of future net fees already booked. The resilience of the contractor order book demonstrates that whilst new placement activity continued to be soft overall this year, all other underlying metrics around our Contract business are strong. We've seen excellent extension rates over the last year, and this has resulted in average contract lengths increasing by 10 O / compared to the prior year, to 60 weeks. To sustain contract margins at 21.7% we've maintained tight pricing control especially on extensions. And the average salary of the Contract roles that we've placed is up 2% YoY, now reaching £107k. The Group's historic measure of productivity was moderately lower year-on-year, reflecting a slightly faster decline in net fees than the reduction in average headcount. However, it is important to note that productivity improved sequentially each quarter, with second half productivity up 5%, demonstrating clear momentum through the year. Looking ahead, we continue to expect to deliver sustainable productivity gains over the mid-term as the benefits of our strategic investments in digital infrastructure begin to come through as anticipated. We are already seeing early indicators of the benefits from TIP, which gives us confidence in the future uplift in productivity, which Nick will expand on later in this presentation. The successful delivery of the TIP rollout, on time, on budget and to an enhanced scope, demonstrates strong cost discipline and project governance. By the end of FY25 we have spent a total of E32 million, which is below the middle of the expected range for the programme. Opex this year of around £3 million was at the lower end of the expected range for the year, taking the total Opex incurred for the programme up to E13 million. We also incurred around £6 million of Capex in the period, also at the lower end of the expected range for the year, taking total Capex incurred up to £19 million. The delivery of the TIP provides the technological foundation for our digital first approach and for achieving sustainably higher profit margins. The platform will continue to be enhanced, with functionality evolving over time. Investment will continue, but at more moderate levels, focused on maintenance and targeted developments. Whilst trading conditions have remained challenging and operating profit is lower this year, we are confident that the investments we have made through TIP position us to deliver higher margins over the mid-to-long term as conditions normalise. Turning to the year-on-year operating profit bridge. You can see the decrease in both Contract and Permanent net fees is partially offset by people costs being down year-on-year. This is primarily due to the 10% average decrease in headcount compared to last year, which is partly reflective of the operational efficiencies coming through and lower commissions. Additionally, we made good progress on cost savings this year, with the FY25 efficiencies programme delivering net savings of circa £7 million, marginally ahead of plan. You can then see the £4.6 million year- on-year increase in IT costs. This reflects the additional on-costs of the new systems, as well as the absence of the R&D claims that in prior years offset a portion of the TIP expenditure. Without those claims this year, the underlying opex charge increases. Lastly, there is a E2.3 million increase in other operating costs, driven by higher professional fees, advertising, and bad debt provisions. This leaves profit for the year at E26.1 million. Looking at our net cash position excluding the impact of the £20 million share buyback programme, we would have been significantly above our FY24 year-end position. After the uplift for operating profit and non-cash items, we recorded a net increase in working capital, as movements in receivables materially offset the movements in payables. This results from a strong final quarter of cash collection recovering aged debts that followed from the transition of a certain number of clients on to the new billing platform We then see our usual outflows, including tax, lease principal payments and capex, of which around £6m was incurred on the TIP, a share purchase for the Employee Benefit Trust, and payments of dividends. Then after the purchase of nearly 8 million shares under the share buyback programme, we end the year with a strong cash balance. Now turning to EPS. Our profit after tax is down 64% YoY on a constant currency basis, reflecting the lower profit before tax, and a higher ETR, partially offset by the decrease in the number of shares relating to the share buyback, resulting in an earnings per share decrease of 63%, to 13.7 pence. Notwithstanding the reduction in our profitability, we continue to have strong confidence in the future of the business and a strong balance sheet. So I'm pleased to confirm that, despite the drop in profits, we will be paying a final dividend of 9.2 pence per share, which brings the full year dividend in line with last year, at 14.3 pence per share. Additionally, in line with our capital allocation policy, we are also initiating a further share buyback programme of up to E20 million. The Board's decision to declare a dividend beyond our typical range, and commence a further buyback, reflects a considered assessment of the Group's trading performance, future outlook, and strong track record of cash generation. It also underscores the Board's commitment to returning surplus capital to shareholders where appropriate. So, to sum up, we are reporting an in line performance. With the rate of net fee decline improving sequentially quarter-on-quarter through the year. Operating profit that reflects the lower net fees, partially offset by disciplined cost control. A robust balance sheet, which provides the flexibility to fund shareholder returns and positions us well to fund our future ambitions. Looking to the current year, the weighting of our profitability will look different to historic phasing, reflecting the impact of our first half weighted costs to deliver our FY26 efficiency programme. We remain confident in delivering our full year expectations. Thank you. I'll now hand back to Timo. Timo Lehne: Thank you, Andy. We'll now turn to look at what we've achieved strategically throughout the year in more detail. Starting with our Places as we strive to lead in the markets we choose to serve. We have increased our emphasis on the USA and Japan, where the scale of STEM demand and structural growth trends present significant opportunity. We were pleased to have delivered growth in both during the year, reinforcing our approach and the earlier initiatives we put in place to improve our market positioning. We've also been aligning ourselves to industries undergoing long-term transformations for example, our US Energy seg ment continues to expand as the sector responds to rising electricity demand and the need to modernise grid infrastructure. Likewise, in Germany, our largest market, whilst trading conditions have been challenging, we have been proactive, we have analysed the government's stimulus plans and identified the sectors where investments are most likely to materialise. These are all sectors in which we already operate, and we have used this time to ensure our teams are appropriately sized and positioned to capture opportunities as they emerge. Turning to our platform. Nick will talk us through the details in a moment. But from my perspective, I would like to say again that the completion of the TIP rollout is a huge achievement. In implementing a programme of this scale across our global operations, our teams have consistently demonstrated the expertise and commitment needed to navigate challenges presented by a country-by-country rollout. I would like to thank everyone for their commitment, persistence and resilience. Now, over to Nick Folkes: Nick to cover what we've achieved to date and why it positions the business for success ahead. Good morning, ladies and gentlemen. I'm Nick Folkes, Chief Operating Officer at SThree, and I oversee the group's Technology Improvement Program or TIP. Today I want to take a step back and talk about what the TIP has delivered so far, and importantly, why those outcomes matter for the business going forward. While the rollout of TIP was only completed at the end of FY25, we are already seeing the early evidence of clear structural benefits coming through. These proof points include an uplift in consultant productivity, improved sales engine quality, and greater operational velocity alongside recurring efficiency gains. Before we get into the detail of these improvement gains, let us first look at what TIP set out to achieve. When we launched TIP, our technology estate had evolved organically over many years. While it supported growth, it also introduced fragmentation, manual workarounds, and limited visibility that constrained scalability and slowed execution, particularly more complex compliance, heavy contract markets, precisely where workflow accuracy and data integrity are most critical. TIP was therefore not an upgrade around the edges. It was a full re-engineering of our operating backbone replacing all the core systems while the business continued to run at scale. Now, with the rollout of TIP's successfully delivered across all 11 markets on time and on budget, we now operate on a single unified global platform. We have transformed data integ rity, replacing fragmented records with a validated governed data foundation. This serves as a single source of truth across clients, candidates and assignments and feeds automation and insight, and we've embedded standardised workflows end to end from front office through order to cash with compliance built in by design. So why does this matter? What I want to do now is focus on the early outcomes we are seeing from TIP and walk through them in a logical way. Firstly, let's examine cost efficiency. Through automation, system consolidation, and simpler operating processes, the program is generating structural recurring cost efficiencies. These efficiencies come from a simplified, standardised, order to cash operating model and automation of core transactional activity, reducing duplication and rework rather than relying on one-off measures on a pure cost out basis. The investment has been financially compelling to date with more cost efficiencies to come in FY26. As of today, this equates to E6.5 million of annualised cost efficiencies already delivered. That matters because it means the programme stands up financially on its own providing a baseline return on investment case before considering the wider value outcomes. Before turning to those it's worth noting that for several of the KPIs I'm about to reference, we've used FY23 as a baseline. That was the point at which our first market went live on TIP in Q4, and it provides a sensible reference period for the changes we're seeing today. As with any transformation of this scale, it's impossible to fully disentangle market effects or attribute performance with precision. However, the indicators our walkthrough represent some of the strongest evidence we have, and the final example is as close to a controlled comparison as we're likely to get. Next, let's review pipeline quality, not just volume. One of the clearest operational signals is the improvement in what we call A and B grade jobs per consultant across the group. A and B jobs are higher quality, more committed vacancies; roles where clients have engaged meaningfully and conversion probability is structurally higher. Since FY23, we've seen a 38 O / increase in A and B grade jobs per consultant across the group. This improvement is a direct consequence of cleaner CRM data, stronger pipeline hygiene, and more disciplined sequencing of sales activity through the CRM. This ensures opportunities progress in a consistent structured order from job creation to placement, meaning consultants are spending more time on the right opportunities earlier in the cycle. The sales engine is therefore becoming stronger in composition, not simply busier. At this point, we'll look at operational velocity. We've seen a meaningful reduction in time to placement across the group, improving 9% since FY23. This reflects faster placement execution and more effective use of data and workflows. Our US contract business where the platform has been embedded for longer provides a mature proof point of this cycle time improvement. This means the results are more pronounced, improving 22% over the same time period. Most importantly though is consultant productivity. Some of the strongest evidence of productivity uplift comes from our US contract business. This was the first market to roll out TIP in FY23 and therefore has the longest live operating history on the platform. FY24 was the first full year of TIP deployed at scale and should be viewed as a stabilisation as new workflows and operating routines bedded in. When we compare a 12 month pre TIP being FY23 with the post TIP position in FY25, we see a material improvement in placements per head for our contract consultants up 18%. This demonstrates that, in the US, TIP supported stabilisation and recovery at scale, following an initial bedding in period rather than an immediate step change uplift. However, one of the clearest causal proof points for TIP outputs comes from our German contract business, where it's unique business combination allows us to show that TIP is the primary driver of resilience and performance improvement. In Germany, the two contract divisions Independent Contractor and Employed Contractor Model, or IC and ECM, operate under the same leadership, serve the same clients, and face the same macro conditions. Historically, they moved in line with each other. The only structural difference that has been introduced was the timing of the TIP deployment. When a performance diversion started to emerge only after the IC business transitioned onto the platform in early 2024. What we saw after this point was that despite a deeper reduction in sales consultants in IC, the TIP enabled division preserved relatively stronger throughput than ECM under the same leadership and client base, with a divergence emerging only after TIP deployment. In concrete terms, I see new placement weekly net fees outperformed ECM by 10 percentage points, when we compare Q3 year to date FY25, the period of time prior to ECM going live on the platform this year with the same time in FY23. That matters because it isolates the effect of the operating model. It shows that fewer consultants can generate relatively stronger throughput, that productivity improvements persist even as headcount contracts, and that the divergent is explained by the platform, not leadership, client mix or market timing. This strikes at the heart of what TIP was designed to do, make the organisation more resilient, more efficient, and less dependent on linear headcount growth. So what do these positive indicators mean in agg regate? What we have now is a truly new global way of operating. TIP has put the foundations and tools in place to drive efficiency, scalability, and more consistent execution across the group. This has enabled a fundamental shift in how we run the business globally. We have moved from reactive retrospective performance reviews to proactive real-time operational control using live performance and behaviour dashboards such as Build your Business and Build your Network. Managers can now see leading indicators as the weak unfolds, not just lagging outcomes after the fact that creates a new operating rhythm, enabling earlier intervention in cycle, tighter coaching on the right behaviours and faster course correction while deals still matter. In short, we have supercharged the SThree way. Unified data and standardised workflows, reinforced by visible and coachable behaviour frameworks, which are driving improvements in pipeline quality, speed, operational velocity, and ultimately consultant productivity. Together these effects create a durable operating engine that improves economic efficiency over time. Achieving this level of change inevitably came with complexity, data migration challenges, dual running systems, adoption challenges, local disruption during go-live, and an expected learning for teams as they adapted to new ways of working. It's important to acknowledge that reality, the program tested the organisation, but working through that complexity was the price of achieving a positive and lasting structural outcome rather than a temporary fix. The price has been meaningful. TIP raised our productivity flaw and improved resilience through the downturn. With clear evidence and robust economics, it has given us a very strong foundation to develop and iterate the platform at pace. The emphasis now shifts from building the platform to executing and scaling the benefits already in place. Next, we'll compound the foundation through targeted intelligent automation and next generation technologies, including Agentic AI, further enabling our people through truly innovative tools and processes. The work ahead is about optimisation, refining, scaling, and compounding what is already in place. While there is more to do, particularly around consultant retention, we now have the data visibility and insight to focus our efforts far more precisely in the areas that matter most. TIP has moved our technology from being a constraint to being a durable enabler of execution with the ability and scale efficiency to support long-term growth. The heavy lifting of TIP is over, but the overall technology journey continues. Thank you. Timo Lehne: Thank you, Nick. Now looking at our Customers. Our increased focus on becoming more client centric and evolving our services to meet the changing needs of our clients is already delivering results. We've seen double-digit growth across our top client cohort demonstrating the benefit of our sharpened focus on our enterprise clients. The value of our services is further evidenced by resilient contract extensions, robust and sustained pricing, and an increase in average contract lengths over the year. Our long-term, valuable client relationships, underpinned by a suite of workforce solutions, is exemplified by two case studies shown here. The left-hand side, demonstrates how we typically deepen and grow a relationship over time, resulting in repeat and expanding services. In this case, our relationship has evolved over an 11-year engagement from placing niche specialists initially, to expanding into a managed service agreement, underpinned by our governance expertise. The result was a 4-fold increase in the contractor footprint. The right-hand side shows our ability to move at speed, delivering AI skills needed in the fast-paced US market. In this case, a clients' need to identify STEM expertise intensified as they prepared to launch a major AI-driven initiative at scale. We streamlined the process, enabling rapid mobilisation, sharing relevant candidates within 48 hours and delivering a wide range of critical hires in under 3 weeks. Moving onto our people pillar. As expected with a transformation of the scale of TIP, the rollout has brought both opportunities and challenges, with change management a major area of focus. Engagement levels have understandably been affected by the pace of change internally and compounded by the wider market backdrop; our global eNPS score was 21, still placing the Group within the middle range of the professional services sector. We have learned a great deal through this journey, and with this infrastructure now embedded, our teams are adapting quickly, giving us the ability to tailor the platform to better support them going forward. This year was marked by the launch of our unified HR platform, alongside the rollout of our performance framework, and a refreshed global sales onboarding programme. Together, these initiatives created a strong foundation designed to empower our people, strengthen our sales culture, and enable faster productivity for new hires over time. And finally, our Proposition pillar. We have talked about how we see ourselves as a workforce consultancy, having long provided more than just transactional staffing to our customers. This slide shows the broad range of solutions we deliver, addressing challenges ranging from unpredictable workforce demand, to the need to hire quickly and at scale without compromising on quality, through to partnering with customers and advising them on risk, compliance and regulatory requirements. This combination results in positive outcomes for our clients. We provide them with predictable access to critical STEM capability, enable them to reduce risks across regulation, compliance and delivery and importantly, have one accountable partner for workforce performance. To sum up. New business activity has been encouraging in key markets such as the US, while a wider recovery, especially in Europe, is still unfolding. Strategically, I believe we are in a great position. We now have the technology and data foundations in place, with modern, tech ready workflows already deployed across the business. We have a clear view of what our operating model needs to be, and we are well underway in evolving it, ready for the new world of staffing and workforce consulting. We understand where technology can remove non-value-added activity, and where human expertise delivers the greatest impact. We have been proactive in our planning, and as a result, we're well-positioned as the advantage for forward-thinking firms continues to grow. And ultimately, by putting clients at the centre of everything we do, creating an agile organisation, and continuing to invest into our people proposition and innovation, we will stay at the forefront of industry dynamics and outpace change.

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