Half Year Trading Update

RNS Number : 7884A

SThree plc

10 June 2016

 

10 June 2016

Half Year Trading Update

SThree plc ("SThree" or the "Group"), the international specialist staffing business, is today issuing a trading update for the half year ended 31 May 2016.

Highlights

·	Group gross profit ("GP") up 6%* YoY and ahead by 11%* excluding Energy
	o	Continued strong growth across ICT (+18%* YoY)
	o	Strongest growth in Continental Europe (+18%* YoY)
	o	USA GP +6%* YoY (+20%* excluding Energy), reflecting tough trading conditions in the Energy and Banking & Finance sectors
	o	UK market impacted by EU referendum uncertainties and slowdown in Banking & Finance sector - GP down by 5%* YoY
	o	Conditions in the Energy market remain challenging - GP down 31%* YoY
·	Contract GP up 11%* YoY and ahead by 14%* excluding Energy
·	Permanent GP down 2%* YoY, but productivity improved by 5% YoY following a decrease in average sales headcount of 7%. Permanent GP excluding Energy up 6%* YoY
·	Group period-end sales headcount down 2% on the 2015 year-end position and up 4% YoY, driven by investment in Contract

Gary Elden, Chief Executive, commented:  "The Group experienced mixed trading conditions in the period.  Our Contract business continued to perform well, with GP increasing by 11%* year on year.  ICT growth was strong, with GP ahead by 18%* year on year, and Continental Europe was once again our fastest growing region, underpinned by a strong performance in DACH, where GP was ahead by 22%* year on year.  However, it is also clear that the uncertainty created by the forthcoming EU Referendum has led to a slowdown in our UK business, and weak Energy and Banking & Finance markets impacted our US growth rate.  Our US ICT and Life Sciences Contract businesses continued to report good growth but we have moved to address some short term execution issues.  These measures will begin to take effect over the second half.        

"Looking ahead, the continued momentum of our Contract business and improved Permanent yields give us a solid base from which to grow in a macro-economic environment which remains uncertain; in addition restructuring measures taken in our Energy, Banking & Finance and UK businesses will benefit future periods.  We remain confident that there are significant growth opportunities for us across the diverse geographies and sectors that we serve." 

Financial Highlights -
Group Gross Profit
			H1 2016	Q2 2016	Q1 2016
Gross Profit	H1 2016	H1 2015	YoY % 1	YoY % 1	YoY % 1
Contract	£79.6m	£70.6m	+11%	+10%	+11%
Permanent	£40.1m	£39.9m	-2%	-12%	+9%
Group	£119.7m	£110.5m	+6%	+2%	+10%
UK&I	£32.0m	£33.5m	-5%	-9%	-
Continental Europe	£57.9m	£48.4m	+18%	+16%	+20%
USA	£22.1m	£19.7m	+6%	-	+14%
Asia Pac & Middle East	£7.7m	£8.9m	-15%	-18%	-13%
Group	£119.7m	£110.5m	+6%	+2%	+10%
ICT	£54.2m	£45.3m	+18%	+15%	+20%
Life Sciences	£23.3m	£20.6m	+10%	+3%	+18%
Energy	£9.3m	£13.3m	-31%	-28%	-34%
Other Sectors 3	£32.9m	£31.3m	+2%	-5%	+12%
Group	£119.7m	£110.5m	+6%	+2%	+10%
Contract / Perm Split
Contract	67%	64%
Permanent	33%	36%
	100%	100%
Geographical Split
UK&I	27%	30%
Continental Europe	48%	44%
USA	19%	18%
Asia Pac & Middle East	6%	8%
	100%	100%
Sector Split
ICT	45%	41%
Life Science	19%	19%
Energy	8%	12%
Other Sectors 3	28%	28%
	100%	100%
			H1 2016	Q2 2016	Q1 2016
Operating Metrics	H1 2016	H1 2015	YoY %	YoY %	YoY %
Contract Runners 2
UK&I	2,680	2,836	-6%	-6%	-3%
Continental Europe	3,948	3,333	+18%	+18%	+21%
USA	1,262	1,173	+8%	+8%	+18%
Asia Pac & Middle East	391	373	+5%	+5%	+6%
Group	8,281	7,715	+7%	+7%	+10%
1 At constant currency
2 Period end number of contractors onsite with clients
3 Other Sectors include Banking & Finance and Engineering

Group gross profit ("GP") increased by 6%* YoY, with Q2 up 2%*, versus growth of 10%* in Q1 2016. Q2 GP was impacted by the ongoing weak activity in the Energy market and the more difficult market conditions in Banking & Finance in both the UK and US. ICT performed strongly with GP up 18%* YoY. Headcount build YoY was relatively modest as we reacted to the changing conditions in the market, with period end sales headcount up 4% YoY and down 2% on the year-end position.

Contract continues to deliver a strong performance, with GP up 11%* YoY for the first half (up 14%* excluding Energy) and up 10%* in Q2 (up 13%* excluding Energy). A large proportion of this growth was driven by Continental Europe up 19%* and the USA up 15%*.

Permanent GP was down 2%* YoY and down 12% in Q2, versus growth of 9%* in Q1 2016. Although down overall, Q2 saw particularly strong growth in DACH and Benelux, up 19%* and 16%* respectively, offsetting weaker performances in Banking & Finance down 24%* YoY and Energy down 77%* YoY. Consistent with our strategic focus, Permanent productivity per sales head was up 5%* YoY in the half year, with average heads down 7%.

Average Group sales heads were up 6% YoY. UK&I sales headcount was down 1% YoY, Continental Europe was up 9%, USA was up 26% and Asia Pacific & Middle East was down 14%. Contract sales headcount represented 61% of total sales headcount at the end of the half year (2015: 55%), up 17% YoY.

During Q2 we undertook certain restructuring initiatives to address the weaknesses highlighted above. We also further rightsized our central support functions. One off costs of circa £2m-£3m will be separately identified as an adjusting item at the forthcoming interim results.

The Group has a network of 43 offices in 15 countries, of which 31 are outside the UK. The Group generated 73% of Gross Profit for the period from markets outside the UK&I (2015: 70%).

SThree remains in a strong financial position. Net debt at 31 May 2016 was circa £4m (31 May 2015: £10m). 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 BST. The details are as follows:

Telephone number: [phone]

For access to the call please quote passcode SThree (7986426)

A replay facility will be available for seven days on [phone] / Access Pin: 7986426

The Group will issue its interim results for the six months ended 31 May 2016 on 11 July 2016.

- 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 2,800 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.

 

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