Business
SThree : FY25 Half Year Results Transcript
SThree : FY25 Half Year Results
About this update from Sthree Plc
SThree plc Half Year Results 2025 | Transcript 29 th July 2025 We have delivered a steady performance in the first half of the year against the persistently challenging market environment. We have made significant progress in preparing our business for when market conditions improve and to align with structural opportunities. As a result of the TIP rollout, over 80% of our business is now transacting through our future ready end-to-end integrated technology infrastructure. This is driving operational efficiencies and significantly enhancing our ability to scale. We are now able to innovate at pace with the foundations to unlock rich data insights and layer in new functionality. We are building an organisation fit for purpose, which combined with our industry experience, deep networks and strong commercial footing means we are ready for the future. We are often asked whether current industry trends are structural or cyclical. We believe they're both. Let's explore further. Regarding our end markets, this is clearly an extended cycle, lasting longer than expected due to persistently low business confidence. However, we do expect this extended cycle to eventually subside and investment to resume. To stay ahead, organisations will need to invest in their future. We anticipate that once pent up demand is released, the demand for flexible STEM roles will be especially acute. Beyond the usual economic cycles, a deeper transformation is underway. Emerging technologies like machine learning and generative AI are reshaping markets and sectors. These trends aren't short-term trends. They signal lasting structural change, and we are well positioned to respond. From a client perspective, organisations of all sizes are re-imagining their business models and workforces. They're now faced with making smart and strategic decisions to ensure they have the skills and expertise needed to compete in an AI enabled future. Every industry will be significantly impacted by technology investment. We have long recognised that structural mega trends including technological advances will shape the workforce of the future and we have deliberately placed our focus at the heart of this opportunity. We help clients build a workforce infrastructure that supports AI innovation across all roles and across all industries. Our tech focus connects businesses with the core skills needed to prepare their data and processes for effective AI adoption. From an industry perspective, our ability to offer workforce solutions means that compared to more transactional and blue-collar staffing businesses, we are less at risk of dis-intimidation from digital platforms. Our clients need experts that can advise them and that is our specialism. Digital transformation including advancements in AI, is reshaping staffing, creating opportunities to deliver, enhanced client and candidate services and drive efficiencies. The world is moving fast and the work we have done in the last three years allows us to capitalise on these trends as we have the right foundations in place, with our focus, scale and one of the most modern technology stacks in our industry. 2 Whilst the landscape around us is evolving rapidly, it is clear that there's pent up demand for the skills we are focused on and we are extremely well positioned to not only keep pace with this evolving landscape but lead the future of this industry. I will cover each of these differentiators in more detail later in the presentation. I will 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 half year performance. Net fees are down 14% year-on-year on a constant currency basis. Contract, which represents 84% of net fees, declined 14% as continued softness in new business activity was partially offset by strong contract extensions. Pleasingly, we also saw a modest sequential quarter-on-quarter improvement in the rate of decline during Q2, reflecting an improved US performance where initiatives aimed at strengthening market positioning are beginning to gain traction. Permanent, which is a smaller part of our business, declined 13 O / and continues to be impacted by challenging market conditions across most of our regions, despite a softening in comparatives. Notably our permanent businesses in the US and Japan recorded growth in the first half of the year. Operating profit for the half was E10 million, which is down 72% 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 early realisation of further operational efficiencies. This has resulted in a conversion ratio, the ratio of operating profit to net fees, of 6.5%. Profit before tax is E10.1 million, down 72% year-on-year reflecting the lower operating profit and lower net interest income on our cash. Now we do expect profits and margins to increase in the second half of the year in part due to the benefits of our first half efficiency actions being weighted to the second half. 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 contractor 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 fee 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 across all regions in the first half. 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 by 9% year-on-year following last year's record performance. Encouragingly within this vertical, our clean energy business continues to perform strongly growing 6% year-on-year and now accounting for 14% of Group net fees. At the same time, we saw continued softness and demand for skills across both technology and life sciences reflecting the persistently challenging trading environment throughout the first half. 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 22% of net fees in H1 of FY19 to 40% of net fees in the first half of FY25. Although acting as the employer of record is not a service unique to SThree, it remains out of reach for most subscale 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. Additionally, 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 rollout 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. 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 8 O / year-on-year as a continued strong extensions performance was only able to partially offset the slowdown in new placements from the prolonged market uncertainty. However, 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 five months' worth of future net fees already booked. The resilience of the contractor order book demonstrates that whilst new placement activity continues to be soft, all other underlying metrics around our contract business are strong. We've seen excellent extension rates in the half and this has resulted in average contract lengths increasing by 18% compared to the prior year to 64 weeks. To sustain contract margins at around 21.5%, we've maintained tight pricing control, especially on extensions, and the average salary of the contract roles that we've placed is up 1% year-on-year. Now reaching £103,000. Productivity was 10% lower year-on-year as the rate of net fee decline was faster than the reduction in average headcount. The movement in headcount reflects careful management of natural churn being highly selective about where we choose to hire and the realisation of operational efficiencies. Near term, we expect productivity to continue to moderate until market conditions improve, but over the mid-term we do expect to deliver sustainable increased levels of productivity as our strategic investments in digital infrastructure deliver the expected benefits. TIP remains on budget and the overall timeline remains on track to complete by the end of FY25. Out of our 11 markets, eight are now actively using the platform representing over 80% of Group net fees. We expect total opex for the year to be in the range of E3 to E4 million. This is weighted to the second half of this year based on the phasing of rollout activities with around E1 million incurred in H1. Total CapEx is expected to be around £6 to £7 million with just under £3 million spent in the period. As we approach the final stages of the programme, we have further refined our delivery forecast. We are pleased to confirm that projected spend remains comfortably within the original £30 to £35 million budget and is now expected to come in towards the mid-to-upper end of that range. 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, and this is primarily due to the 5% average decrease in headcount compared to last year, which is partly reflective of the further operational efficiencies coming through. To date, we have made good progress and remain on track to deliver the £6 million in-year net saving target for FY25. Of this, around £2 million has already been achieved since most of the costs to deliver were incurred in the first half of the year, we expect a natural uplift in savings in the second half. You can also see the EO.3 million year-on-year increase of opex costs for the TIP and £2.1 million year-on-year increase of other operating costs. This includes additional expenditure related to the commencement of TIP amortisation and license fees, as well as property and marketing expenditure, which is partially offset by disciplined management of other operating costs. And this leaves profit for the half at E10 million. Attention : This is an excerpt of the original content. To continue reading it, access the original document here .