Q3 Trading Update

RNS Number : 7355Y

SThree plc

11 September 2015

 

11 September 2015

Q3 Trading Update

SThree plc ("SThree" or the "Group"), the international specialist staffing business, is today issuing a trading update covering the period from 1 June 2015 to date; financial information relates to the quarter ended 31 August 2015.

Highlights

·     Group gross profit ("GP") up 13%* year on year ("YoY") and ahead by 20%* excluding Energy

‐      Continued strong growth across ICT (+21%* YoY) and Life Sciences (+21%* YoY)

‐      Energy remained weak in Q3 as expected (-25%* YoY), but grew sequentially in Q3 vs Q2

‐      Another strong performance in the Americas (+31%* YoY), which now represents 22% of Group GP (Q3 2014: 17%)

·     Contract GP up 20%* YoY

‐      Continued strong growth in Contract runners - up 15% YoY and 6% above the 2014 year end peak

·     Permanent GP up 1%* YoY; with Permanent GP excluding Energy up 12%* YoY

·     Group sales headcount up 4% versus the year end position and up 7% YoY, driven by increased Contract and reduced Permanent heads

·     Good progress on productivity per consultant, up 9%* YoY

·     Results for the year ended 30 November 2015; including the impact of circa £3m of restructuring costs, expected to be ahead of the current market consensus¹

¹The company believes that the range of analyst expectations for pre-tax profit for the year ended 30 November 2015 is £35.1m to £38.5m, with a consensus of £36.7m.

Gary Elden, Chief Executive, commented:

"The Group performed well during the third quarter, as we continued to benefit from the geographic and sectoral diversity of our operations.  The performances from our ICT, Life Sciences and Engineering businesses were particularly pleasing.

"Our Contract business sustained its strong trading momentum, with Contract GP increasing by 20%* year on year. Contract now accounts for almost two thirds of Group GP. 

"Our Americas business again reported a strong performance, growing 31%* year on year driven by expansion of the ICT, Life Sciences and Banking & Finance sectors. We continue to expand and diversify our sector offering in the USA, the world's largest specialist STEM staffing market, and the growth prospects are exciting.

"While overall conditions in the Energy market remain challenging, our Contract business is proving, as expected, to be more resilient, underpinning a sequential improvement in performance in Energy in Q3 over Q2.

"Looking ahead, we believe the trading environment remains positive in the majority of our territories. While the outlook for Energy remains challenging and foreign exchange continues to be a headwind, the Group's robust overall performance demonstrates the inherent benefits of our well-diversified portfolio. An expanded Contract book and improving Permanent performance outside the Energy sector give us a strong base as we enter the seasonally most significant fourth quarter, and we now expect pre-tax profit for the year will be ahead of current market consensus."   

Key Metrics & Commentary

With effect from the beginning of the current financial year, SThree began reporting quarterly on a three month calendar basis, replacing the thirteen week quarter basis previously adopted.  This change was implemented to improve comparability of periods and to avoid the need for 53 week "rebasing" years such as 2013. 

Financial Highlights -
Group Gross Profit
			Q3 2015		Q2 2015	Q1 2015
Gross Profit	Q3 2015	Q3 2014 1	YoY % 2		YoY % 2	YoY % 2
Contract	£39.3m	£34.1m	+20%		+17%	+24%
Permanent	£21.7m	£21.0m	+1%		+4%	+6%
Group	£61.0m	£55.1m	+13%		+12%	+17%
UK&I	£17.3m	£16.6m	+5%		+9%	+13%
Continental Europe	£26.0m	£23.8m	+18%		+11%	+14%
Americas	£13.2m	£9.4m	+31%		+31%	+38%
Asia Pac & Middle East	£4.5m	£5.3m	-15%		-7%	+16%
Group	£61.0m	£55.1m	+13%		+12%	+17%
ICT	£25.0m	£21.3m	+21%		+17%	+22%
Energy	£6.4m	£8.7m	-25%		-18%	+14%
Other Sectors 4	£29.6m	£25.1m	+20%		+16%	+11%
Group	£61.0m	£55.1m	+13%		+12%	+17%
Contract / Permanent Split
Contract	64%	62%
Permanent	36%	38%
	100%	100%
Geographical Split
UK&I	28%	30%
Continental Europe	43%	43%
Americas	22%	17%
Asia Pac & Middle East	7%	10%
	100%	100%
Sector Split
ICT	41%	39%
Energy	10%	16%
Other Sectors 4	49%	45%
	100%	100%

			Q3 2015		Q2 2015	Q1 2015
Operating Metrics	Q3 2015	Q3 2014 1	YoY % Var			YoY % Var
Contract Runners 3
UK&I	2,784	2,857	-3%		+3%	+12%
Continental Europe	3,523	2,724	+29%		+29%	+27%
Americas	1,321	972	+36%		+44%	+73%
Asia Pac & Middle East	398	397	+0%		+8%	+53%
Group	8,026	6,950	+15%		+19%	+27%
Permanent Placements 5
UK&I	471	424	+10%		+18%	+17%
Continental Europe	657	551	+5%		-2%	+0%
Americas	245	260	-5%		-8%	+6%
Asia Pac & Middle East	204	325	-38%		-15%	-12%
Group	1,577	1,560	-4%		+0%	+3%
1 Prior year numbers are on a 13 week quarter basis, variances at constant currency are
calculated against restated numbers on a calendar month basis.
2 At constant currency
3 Period end number of contractors onsite with clients and being billed
4 Other Sectors include Banking & Finance, Engineering and Life Sciences
5 Exclude Retainers

Group GP growth was strong in Q3 up 13%* YoY (up 12%* in Q2) and sequentially up 8%* Q3 vs Q2. While overall results continued to be impacted by the ongoing weak activity in the Energy market, all other sectors performed strongly with GP excluding Energy up 20%* in Q3 (up 16%* in Q2).  Average consultant headcount for the quarter was up 4% YoY.  We continue to experience foreign exchange headwinds, with Euro weakness only partially offset by a stronger US dollar.

Contract continued to perform strongly in Q3, with GP up 20%* YoY (up 17%* in Q2). Despite the Energy impact, we saw strong growth in Contract runners, up 15% YoY at period end and up 6% since the November year end peak. Average contractor gross profit per day rates remained robust during the period. Contract consultant average headcount was up 14% YoY. 

Permanent GP was up 1%* YoY in Q3 (up 4%* in Q2). Excluding Energy, Permanent GP was up 12%* in Q3 (up 10%* in Q2). In the quarter, the UK&I was up 5%*, Continental Europe up 5%*, Americas up 8%* and Asia Pacific & Middle East down 22%*, reflecting the greater Energy exposure in this region. Average permanent placement fees remained robust. Permanent consultant average headcount was down 7% YoY and up 2% YoY excluding Energy.

Energy GP was down 25%* YoY (down 18%* in Q2), with Permanent GP down 53%* and Contract GP down 7%* YoY, broadly in line with headcount down 63% in Permanent and 10% in Contract since the start of the year. Sequentially, Energy GP was up 11%* Q3 vs Q2, with Permanent GP down 5%* and Contract GP up 17%*. While overall conditions in the Energy market remain challenging, our Contract business is proving, as expected, to be more resilient, with the contract Energy book in Q3 rebuilding from a trough in May to February 2015 levels.

Group sales headcount at the end of the quarter was up 7% YoY and 4% versus the year end. Year on year UK&I sales headcount was up 8%, Continental Europe was up 5%, Americas was up 42% and Asia Pacific & Middle East was down 25% reflecting headcount reductions in its Energy business. Consultant headcount continued to remix towards Contract during the quarter, with Contract consultant numbers up 9% and Permanent consultant headcount down 6% since the start of the year. At the end of the period, Contract consultant headcount represented 57% of total consultant headcount.

Restructuring costs of circa £3m relating to the right sizing of the Energy business (which is largely complete) and the impairment of certain IT assets ahead of a forthcoming new system implementation will be taken in the year.

SThree remains in a strong financial position. Net debt at 31 August 2015 was circa £20m and is expected to reduce significantly in the fourth quarter due to usual seasonal factors. The Group has a £50m revolving credit facility ("RCF") with RBS and HSBC, which is committed to 2019.

* at constant currency and prior year restated to a calendar month basis

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 confirmation code: 9498882

A replay facility will be available for seven days on [phone] / replay passcode:  9498882

The Group will issue a trading update for the year ended 30 November 2015 on 11 December 2015.

- 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 across a network of 41 offices in 15 countries, of which 29 are outside the UK.

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.

 

END

 

 

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