9 December 2016

FY16 Trading Update

SThree plc ('SThree' or the 'Group'), the international specialist staffing business, is today issuing a trading update for the financial year ended 30 November 2016.

Highlights

- Profit before tax for the year expected to be slightly above the top end of the range of current market expectations¹

- Group gross profit ('GP') up 2%* YoY and ahead by 6%* excluding Energy

- Robust growth across ICT (+12%* YoY) and Engineering (+9%* YoY)

- Strong growth in Continental Europe (+13%* YoY), driven by DACH (+17%* YoY)

- USA GP level* YoY (up 9%* excluding Energy), reflecting tough trading conditions in Energy and Banking & Finance

- 75% of Group GP generated from markets outside the UK&I (2015: 70%).

- UK market impacted by slowdown in Banking & Finance sector, Public Sector reforms and EU referendum result - GP down by 8%* YoY

- Conditions in the Energy market remain challenging - GP down 30%* YoY

- Contract GP up 8%* YoY and ahead by 11%* excluding Energy

- Permanent GP down 8%* YoY, broadly in line with average sales headcount down 10%. Permanent GP excluding Energy down 1%* YoY

- Group period-end sales headcount down 6% YoY, with Contract sales heads up 1% offsetting Permanent sales heads down 17%

- Period end net cash of circa £10m, after share buy backs of £7m (30 November 2015: net cash of £6.2m)

1 The range of market expectations for adjusted pre-tax profit for the year is £37.3m to £39.0m, with a current consensus of £38.3m. Adjustments relate to restructuring items of circa £3.5m in certain sales businesses and central support functions.

Gary Elden, Chief Executive, commented: 'We have delivered a solid overall performance for the year, in the face of mixed trading conditions. Our Contract business continued to perform well, with GP increasing by 8%* year on year and with contract runners reaching in excess of nine thousand, a milestone for the Group. Continental Europe once again grew strongly, underpinned by a very pleasing performance in DACH, where GP was ahead by 17%* year on year.

'Looking ahead to 2017, global political and macro-economic uncertainties have increased across a number of our key regions. We are managing the business prudently in the light of these market conditions, and continue to invest in our highest performing teams. The momentum of our Contract business, the strength of our performance in Continental Europe and the benefit of restructuring measures taken earlier in the year, leave us well-positioned for the future.'

Financial Highlights - Group Gross Profit

			FY 2016		Q4 2016	Q3 2016	Q2 2016	Q1 2016
Gross Profit	FY 2016	FY 2015	YoY % 1		YoY % 1	YoY % 1	YoY % 1	YoY % 1
Contract	£173.6m	£150.9m	+8%		+5%	+6%	+10%	+11%
Permanent	£85.1m	£84.7m	-8%		-10%	-15%	-12%	+9%
Group	£258.7m	£235.6m	+2%		-	-2%	+2%	+10%
UK&I	£64.0m	£69.5m	-8%		-12%	-9%	-9%	-
Continental Europe	£127.6m	£103.3m	+13%		+8%	+12%	+16%	+20%
USA	£50.7m	£45.4m	-		+1%	-10%	-	+14%
Asia Pac & Middle East	£16.4m	£17.4m	-15%		-4%	-26%	-18%	-13%
Group	£258.7m	£235.6m	+2%		-	-2%	+2%	+10%
ICT	£115.8m	£97.3m	+12%		+6%	+8%	+15%	+20%
Banking & Finance	£41.7m	£42.6m	-9%		-10%	-16%	-14%	+6%
Energy	£19.6m	£26.2m	-30%		-24%	-32%	-28%	-34%
Engineering	£23.3m	£20.0m	+9%		+6%	+9%	+1%	+21%
Life Sciences	£54.3m	£45.2m	+8%		+6%	+4%	+7%	+19%
Other3	£4.0m	£4.3m	+1%		-11%	-3%	+11%	+15%
Group	£258.7m	£235.6m	+2%		-	-2%	+2%	+10%
Contract / Perm Split
Contract	67%	64%
Permanent	33%	36%
	100%	100%
Geographical Split
UK&I	25%	30%
Continental Europe	49%	44%
USA	20%	19%
Asia Pac & Middle East	6%	7%
	100%	100%
Sector Split
ICT	45%	41%
Banking & Finance	16%	18%
Energy	8%	11%
Engineering	9%	9%
Life Science	21%	19%
Other	1%	2%
	100%	100%
			FY 2016		Q4 2016	Q3 2016	Q2 2016	Q1 2016
Operating Metrics	FY 2016	FY 2015	YoY %		YoY %	YoY %	YoY %	YoY %
Contract Runners2
UK&I	2,663	2,881	-8%		-8%	-3%	-6%	-3%
Continental Europe	4,572	3,823	+20%		+20%	+18%	+18%	+21%
USA	1,363	1,297	+5%		+5%	-	+8%	+18%
Asia Pac & Middle East	480	411	+17%		+17%	+3%	+5%	+6%
Group	9,078	8,412	+8%		+8%	+7%	+7%	+10%
1 At constant currency
2 Period-end number of contractors onsite with clients
3 Other includes Procurement & Supply Chain and Sales & Marketing

 

Group gross profit ('GP') for the year was up 2%*, with average sales headcount up 1%. We experienced strong growth in Continental Europe, ICT and Engineering, but overall growth in GP slowed during the year. Growth was impacted by the ongoing weak activity in the Energy market, a continuation of the more difficult market conditions in Banking & Finance and EU Referendum uncertainty and Public Sector reforms within the UK. Against this backdrop, we restructured certain of our businesses during the first half and became more selective in our investments in response to the increasingly challenging market conditions.

Contract GP was up 8%* YoY, or up 11%* excluding Energy. A large proportion of this growth was driven by Continental Europe - which was up 17%* and which now represents more than half of our contract runners - offsetting UK&I down by 3%*. USA Contract GP was up by 10%*, with ICT growth of 53%* and Life Sciences growth of 20%* offset by Energy down 28%*.

Permanent GP was down 8%* YoY, with average sales headcount down 10%. Excluding Energy, Permanent GP was down 1%*. Continental Europe posted a 7%* YoY increase, driven by DACH up 11%*, offsetting weaker performances in UK&I down 21%* and USA down 15%*. In the light of challenging market conditions in Energy and Banking & Finance, and the result of the EU referendum, we have further focussed on productivity in our Permanent business. Our Permanent productivity per head improved by 3%* over the year, with an 8%* improvement in Q4.

Average Group sales heads were up 1% YoY. UK&I sales headcount was down 7% YoY, Continental Europe was up 7%, USA was up 7% and Asia Pacific & Middle East was down 11%. Contract sales headcount represented 63% of total sales headcount at the end of the year (2015: 58%), up 11% YoY.

The Group has a network of 39 offices in 15 countries, of which 30 are outside the UK. The Group generated 75% of Gross Profit for the period from markets outside the UK&I (2015: 70%).

SThree remains in a strong financial position. Net cash at 30 November 2016 was circa £10m (30 November 2015: £6m). The Group has a £50m revolving credit facility ('RCF') with RBS and HSBC, which is committed to 2019.

* at constant currency

SThree is hosting an analyst conference call today at 0830 GMT. The details are as follows:

Telephone number: +44 (0) 330 336 9411

For access to the call please quote passcode SThree

A replay facility will be available for seven days on 0808 101 1153 or +44 (0) 207 660 0134 Passcode: 7611856

The Group will issue its results for the financial year ended 30 November 2016 on 23 January 2017.

- Ends -
 

Enquiries:
SThree plc	020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/IR Enquiries
Citigate Dewe Rogerson	020 7638 9571
Kevin Smith/Jos Bieneman

 

Notes to editors

SThree is a leading international specialist staffing business, providing permanent and contract specialist staff to a diverse client base of over 7,000 clients. From its well-established position as a major player in the information and communications technology ('ICT') sector the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 2,700 employees in fifteen countries.

SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STHR and also has a US level one ADR facility, symbol SERTY.

Important notice

Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Certain data from the announcement is sourced from unaudited internal management information and is before any exceptional items. Accordingly, undue reliance should not be placed on forward looking statements.