Trading Statement

RNS Number : 8580U

SThree plc

06 December 2013

 



6 December 2013





Trading Update

SThree plc ("SThree" or the "Group"), the international specialist staffing business, is today issuing a trading update for the 53 weeks ending 1 December 2013.

Highlights:

·    Full year profit before tax and exceptional items expected to be £21m-£22m

·    Full year Group gross profit of circa £200m, down 5%* year on year

·    Contract gross profit up 4%* year on year

·    Contract runners at period end at 5,791, the highest since the 2008 peak of 5,745.

·   Strong growth in contract book in Q4, with number of runners up 7% over Q3 and up 13% year on year, giving a robust exit rate into 2014

·    Permanent gross profit down 14%* year on year

·    Strong performances from newer sector disciplines, with Energy up 9%* year on year, and Pharma & Biotech, up 18%* year on year

·    Strong growth in the Americas (up 32%* year on year), now represent circa 11% of Group gross profit

·    Headcount growth in line with expectations - Permanent headcount  increased by 8% and Contract headcount up by 9% since the half year

·    Net cash of circa £8m at year end

Gary Elden, Chief Executive, commented: "Our trading momentum was broadly positive in the fourth quarter, with an expected sequential improvement in our performance over the third quarter.

"Contract continued to benefit from a greater strategic focus and our investment in headcount, with encouraging growth in contract runners and gross profit.  Contract now accounts for 56% of Group gross profit, an increase of five percentage points year on year.  Our newer Energy and Pharma & Biotech contract businesses also traded strongly, posting double digit growth year on year as demand in both sectors remained robust.

"Our Permanent business continued to feel the effects of the resourcing issues that we highlighted at the interims, but with Permanent consultant headcount up 8% since the half year, we expect to see an improved performance from this business in 2014.

"Overall, while we have seen some improvement in economic confidence in a number of our markets during the second half of the year, the picture remains mixed and it is still too early to call a broadly-based recovery. 

"As we look forward, the strength of our contract book and an improving permanent pipeline point to a more encouraging picture, and the restructuring undertaken in the second half provides the Group with a solid platform for growth as we head in to the new financial year.  Our experienced management team and strong financial position give us confidence that we will make the best of the market opportunity in 2014."

Key Metrics and Commentary

The current period results comprise 53 weeks, and for comparison purposes, 52 week data which excludes the final trading week of the 2013 financial year, is disclosed where relevant. To provide a meaningful comparison, a summary of the financial performance on a 52 week basis is provided below and all year-on-year growth data referred to below is on a 52 week basis unless stated otherwise.

Financial highlights - Group Gross Profit
	FY 2013 1	FY 2013 1	FY 2012 1	FY 2013 1 & 5		Q4 2013 1 & 6	Q3 2013 1
	53 weeks	52 weeks		YoY % Var 2		YoY % Var 2	YoY % Var 2
Permanent	£87.0m	£85.3m	£97.8m	-14%		-15%	-11%
Contract	£109.7m	£107.5m	£101.7m	+4%		+4%	+7%
Group	£196.7m	£192.8m	£199.5m	-5%		-5%	-2%
UK&I	£61.0m	£59.8m	£66.9m	-11%		-10%	-9%
Non UK&I	£135.7m	£132.9m	£132.5m	-2%		-3%	+1%
	£196.7m	£192.8m	£199.5m	-5%		-5%	-2%
ICT	£85.2m	£83.6m	£91.3m	-10%		-13%	-5%
Non ICT	£111.5m	£109.2m	£108.2m	-1%		+1%	+1%
	£196.7m	£192.8m	£199.5m	-5%		-5%	-2%
Contract / Permanent Split
Permanent	44%	44%	49%
Contract	56%	56%	51%
	100%	100%	100%
Geographical Split
UK&I	31%	31%	34%
Non UK&I	69%	69%	66%
	100%	100%	100%
ICT / Non ICT Split
ICT	43%	43%	46%
Non ICT	57%	57%	54%
	100%	100%	100%
Operating Metrics
	FY 2013	FY 2013	FY 2012	FY 2013 5		Q4 2013 6	Q3 2013
				YoY % Var		YoY % Var	YoY % Var
Permanent Placements 3	53 weeks	52 weeks
UK&I	1,873	1,837	2,369	-22%		-20%	-21%
Non UK&I	4,686	4,592	4,974	-8%		-9%	-5%
Group	6,559	6,429	7,343	-12%		-13%	-10%
Contract Runners 4
UK&I	2,552	2,552	2,452	+4%		+4%	+1%
Non UK&I	3,239	3,239	2,670	+21%		+21%	+15%
Group	5,791	5,791	5,122	+13%		+13%	+8%

1 Excluding IT Job Board

2 At Constant Currency

3 Excludes Retainers

4 Period end number of contractors onsite with clients and being billed

5 FY 2013 variance % calculated using a normalised 52 week period for 2013

6 Q4 Variance % calculated using a normalised 13 week period for 2013

Group gross profit ("GP") for the year decreased by 5%*.  Q4 Group gross profit was down 5% year on year and up 3%* sequentially versus Q3.

Contract performed pleasingly in the year, with GP up 4%* year on year and with Q4 up 4%* sequentially versus Q3. Growth in gross profit in Europe (+3%*) and Rest of World (+42%*), offset a decline of 4% in the UK&I. The number of contract runners was up 13% versus the start of 2013. Average contractor gross profit per day rates remained robust sequentially in Q4 versus Q3, but remained slightly lower year on year. The contract exit rate in Q4 has built encouragingly, with year end runners up 7% versus Q3, giving us a strong platform for 2014.

Permanent gross profit declined by 14%* year on year, broadly in line with average heads down 11%, and with Q4 up 2% sequentially versus Q3. UK&I permanent gross profit declined by 24% (Q4: down 25%), with average heads down 18%, Continental Europe permanent gross profit declined by 17%* (Q4: down 16%*), with average heads down 14% and Rest of World permanent gross profit was level (Q4: down 4%*), with average heads up 2%.  Comparability of the permanent deal pipeline at year-end is complicated by the 53 week period, but the overall trend was positive.

The UK&I has seen pleasing growth in contract runners since the half year, up 6% to 2,552 (May 2013: 2,401), supported by contract sales headcount growth of 7% over the same period. In UK permanent, we are pleased to have built our sales headcount by 6% since the half year, taking us back to where we started 2013, and this, combined with improving market sentiment gives us confidence for 2014.

Group sales headcount at 1 December 2013 was up 12% year on year. UK&I sales headcount was up 3% year on year, Continental Europe sales headcount was up 11% year on year and Rest of World sales headcount was up 26% year on year. Average sales headcount was level year on year, with Permanent heads down 11% and Contract heads up 16%. Since the half year, Permanent headcount has increased by 8% and Contract headcount by 9% in line with expectations.

The Group finished the year with 56 offices in 22 countries, of which 41 were outside the UK.  New offices were opened in Tokyo, Calgary, and Berlin during the year. Non UK&I now represents 69%* of gross profit (2012: 66%*).

During the second half of the year SThree disposed of The IT Job Board, a small, non-core part of the Group, for an initial cash consideration of £9.2m (including £1.2m of cash transferred with the business), plus a further £3.0m, dependent upon the achievement of certain financial targets ending in 2014.

The Group ended the year with net cash of circa £8m.

The restructuring of the Group's property portfolio and support functions is now largely complete and is expected to generate cost savings of circa £8m per annum. As part of this initiative, at the year end, the Group restructured its UK business into a limited liability partnership ("LLP"), to reduce costs and better incentivise key managers. Under the LLP, a wider range of incentives can be offered, including capital interests in respect of more mature businesses, with this being subject to approval by shareholders at a general meeting convened for 23 December 2013.

The Group's effective tax rate is expected to increase to circa 45% for 2013 as a result of the de-recognition of previously capitalised losses in respect of Australia and Belgium, which continued to be loss making in the year. Going forward, we expect the effective tax rate to be at around, or slightly less than 30%, dependent upon geographical profit mix.

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

Telephone number: [phone]

For access to the call please quote passcode SThree

The Group will issue its results for the 53 weeks ended 1 December 2013 on 3 February 2014.

* at constant currency & excluding IT Job Board, normalised for a comparable 52 week year

- 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/Nicola Swift

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 Banking, Energy & Engineering and Pharma & Biotech 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 2,300 employees in 22 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. Accordingly, undue reliance should not be placed on forward looking statements. 

 

END

 

 

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