SThree Lives Up To Its Potential
SThree Lives Up To Its Potential
SThree, the international specialist staffing business, is today announcing its final results for the year ended 25 November 2012.
Gross Profit ('GP')
Profit before taxation ('PBT')
Basic earnings per share
Proposed ordinary final dividend
Total ordinary dividends (interim plus final)
· A satisfactory performance given the deteriorating macro-economic backdrop as the year progressed
· Continued sector diversification, with non-ICT disciplines now representing 46% of total GP (2011: 40%)
· Strong performances from Energy & Engineering (48%*) and, Pharmaceuticals & Biotechnology (39%*), which together now account for 33% of Group GP
· Non-UK&I share of GP increased to 65% (2011: 63%), with the trend expected to continue as the Group becomes ever more international
· New offices opened in Oslo, San Diego, Rio de Janeiro and Brisbane, bringing the Group total to sixty four offices in eighteen countries
· Split of contract versus permanent GP remixes to 50%:50% (2011: 48%:52%)
· Total Group headcount at year end decreased by 3.7% to 2,188 (2011: 2,272), although average Group headcount up 9.4%
· Group remains in a strong financial position, with year end net cash and term investments of £28.3m (2011: £55.6m) after payment of the special dividend of £13.2m in December 2011
· Gary Elden appointed CEO with effect from 1 January 2013, as previously announced.
*at constant currency
Gary Elden, CEO, commented: "As we enter 2013, macro-economic conditions remain uncertain. In this environment, the benefits of the Group's balance of contract and permanent business, and the success of its geographic and sector diversification in recent years are more evident than ever."
"Our contract division, which makes half of gross profits, reported a strong performance and remains a key area of strategic focus. Our fast growing Energy & Engineering and Pharmaceuticals & Biotechnology businesses, which between them make up about one third of gross profits, continued to experience strong demand."
"Whatever 2013 has in store for us, we remain confident that we will make the best of it. We will manage the business prudently but we will not lose sight of the great medium term prospects for our business and we will invest where appropriate to ensure that the Group's future lives up to its potential."
2012 saw a steady deterioration in macro economic confidence that impacted on our activity levels and financial performance. Given the sentiment-driven nature of the staffing market, demand deteriorated across the year in line with the associated decreases in client and candidate confidence. Against this backdrop, we are pleased to be reporting a satisfactory outcome for the year.
Our performance was particularly impacted in our more mature geographies, where there was less opportunity to capitalise on structural growth to mitigate the economic headwinds. However, we saw strong performances from our Energy & Engineering and Pharmaceuticals & Biotechnology businesses across all geographies as these businesses made an increasingly important contribution to the Group result. Contract, an area of significant focus for the Group in 2012, also significantly out-performed permanent.
During the year, we continued to invest in our international expansion, adding new offices in Oslo, Brisbane, Rio de Janeiro and San Diego, and in our IT infrastructure, which we see as a key differentiator.
Our commitment to the dividend remains unwavering and we are pleased to be maintaining the level of the ordinary dividend, despite a reduction in profits for the year.
During the year Group GP was up 5.0% at £205.3m (2011: £195.5m) and PBT of £25.3m was down 16.6% (2011: £30.3m).
The reduction in profitability was principally driven by a decline in consultant productivity in the face of deteriorating macro-economic confidence, and by continued investment in the future growth of the business (primarily new offices and IT).
Although 2012 was again a year of investment, the Group had another robust performance in terms of cash generation. At the end of 2012 net cash was £28.3m (2011: £55.6m), after buying back £6.9m of shares, paying ordinary and special dividends of £30.0m and investing £10.5m in capital expenditure in respect of new offices and enhancing IT platforms.
The Group continued its well established programme of international expansion, rolling-out a further four office locations during the year. New offices were opened in Oslo, Rio de Janeiro, Brisbane and San Diego to support growth within the Energy & Engineering and Pharmaceuticals & Biotechnology sectors. The Group now has a total of 64 offices in 18 countries.
In aggregate, Group GP generated from outside of the UK&I was £134.4m (2011: £124.2m), up 8.2%. UK&I GP of £70.9m represented a 0.5 % decline on the prior year (2011: £71.3m) and reflected the more mature nature of the UK&I staffing market. The UK performance was pleasing given the further deterioration in the already very weak UK investment banking market.
As a consequence of the faster growth recorded outside of the UK&I, the Group's geographical business mix underwent a further shift in favour of our international operations. For 2012 the ratio was 65:35 in favour of non UK&I GP compared with 63:37 in 2011. We expect this trend to continue ensuring that the Group becomes ever more internationally diverse. That said, we have full confidence in the long term value of our UK&I business and expect to see very positive returns as sentiment ultimately improves. Given our focus on niche specialisms, in more normal conditions our candidates remain highly sought-after, even in more mature markets, and we have demonstrated over many years that our UK&I business does not require high rates of GDP growth to perform strongly.
All of our international markets are less developed than the UK, offering us the opportunity to drive margin improvement and benefit from structural market growth. Group GP generated from Continental Europe was up 1% at £99.4m (up 7% on a constant currency basis), with a robust performance from Germany, up 7%, (up 14% on a constant currency basis) offsetting Benelux, down 9%, (down 3% on a constant currency basis). Group GP generated from Rest of World grew by 36% (up 35% on a constant currency basis) with particularly notable performances from Australia up 38% and USA up 49% (both on a constant currency basis).
Further international office expansion is planned for 2013 with Tokyo, Calgary and Kuala Lumpur all due to open in the first half.
We have continued our focus on four core sectors - ICT, Energy & Engineering, Pharmaceuticals & Biotechnology and Banking & Finance.
ICT represented 54% of GP during the year (2011: 60%). ICT is our longest and most established sector and consequently the majority of ICT business is in the more mature UK and European markets and its performance reflected this geographical bias. ICT GP for 2012 at £110.8m was down 5% (2011: £116.6m) or down 2% on a constant currency basis.
As usual, the GP breakdowns given above are a reflection of the skill set of the candidate rather than the business sector of the client company. Measured by the latter, rather than a 54% exposure to the ICT market, only 18% of the Group's transactions in 2012 (2011: 19%) were with ICT firms per se. This limits the Group's exposure to this type of customer, who are typically (particularly in mature markets) more margin-sensitive.
Energy & Engineering and Pharmaceuticals & Biotechnology enjoyed very strong growth, up 48% and 39% respectively on a constant currency basis. Banking & Finance, as expected, had a very challenging 2012 and was down 19% on a constant currency basis.
Overall, non ICT GP grew by 20% year on year (up 23% on a constant currency basis) to £94.5m (2011: £78.9m).
"High Margin High Value"
Our selective attitude to customers has a direct bearing on our ability to consistently pursue our "High Margin High Value" approach. The Group has an established strategy of focusing on the quality of the business it transacts. Given the highly fragmented nature of the specialist staffing market we do not see the case for buying market share and, in the process, exchanging value for volume. In particular, we consciously avoid the lower margin business which is often a prerequisite of dealing with larger price-sensitive clients in our more competitive markets.
During the year, we developed improved Management Information tools that allow us to calculate the lifetime profitability of individual contractors, taking into consideration GP day rates, initial contract lengths, extensions, credit notes, commissions and the support costs of providing the contractor to the client. Using these tools, we have begun to focus the business on lifetime profitability and in certain sectors, this may start to impact contract margin percentages and/or GP day rates, where we decide it is financially sensible to accept a lower headline margin percentage and/or GP day rate in return for higher overall returns to the Group.
In parallel, we are increasingly looking to move further "up the food chain" and place more highly paid candidates, either as a function of their seniority and/or their niche specialisation. This initiative, along with the positive impact of an increasing contribution from higher value geographies (e.g. Germany) was reflected in the robustness of our fees and contract rates during the year. The Group's overall contract margin stayed stable at 21.5% (2011: 21.4%) and the average GP per day rate (GPDR) improved somewhat, up 1.3% to £88 (2011: £87) on a constant currency basis.
A similar but more pronounced value theme was seen in the Group's permanent business. The average fee recorded in 2012 was £13,901 (2011: £13,061) up 6.4% on a constant currency basis. It is worth noting that this was achieved despite the fact that the Banking market (with its associated higher-than-average fees) was again weak throughout 2012, and reflects, in part, the growth of our Energy & Engineering and Pharmaceuticals & Biotechnology businesses, which also enjoy attractive fees.
Contract/Permanent Business Mix
As expected, in 2012 contract performed more strongly than permanent against a more challenging economic backdrop. In the current economic environment, contract has been a key area of strategic focus and we have implemented a number of new initiatives including the lifetime profitability analysis discussed above. The number of contract runners at the end of 2012 had improved to 5,122 (2011: 4,692) representing an increase of 9.2%. During the year the Group made a total of 7,343 permanent placements (2011: 7,434), a decrease of 1.2%.
As a result we saw a further re-mixing of the business in favour of contract, such that contract GP represented 50% of the Group total in 2012, up from 48% of GP in 2011. The evolution of this metric in the near term will be at least somewhat dictated by the macro-economic backdrop in 2013. In a more challenging environment contract tends to be the more resilient of the two, but when sentiment changes for the better, permanent can recover very quickly. We are pleased to have a balanced business with our significant contract presence providing a key source of growth and some downside protection.
The Group ended 2012 with a total of 2,188 staff (2011: 2,272) a decrease of 3.7% on the prior year, as we allowed natural attrition to right size businesses in certain markets. Sales headcount grew in Rest of World by 18%, but was down in Europe by 5% and down in the UK by 18%.
Headcount growth for 2013 is likely to be modest and driven by sector and geographical opportunities. This partly reflects the uncertain economic outlook, but is also driven by a focus on improving the productivity of existing staff. In any case, we will only look to grow headcount where the current and recent performance of the specific team and the strength of the demand pipeline, merit it.
Given current levels of global economic and political uncertainty, predicting the kind of market conditions the Group will face during 2013 with any accuracy is extremely difficult. While the specialist staffing market does not need high levels of GDP growth to perform strongly, confidence is key to sentiment and this is undermined by persistent uncertainty.
Whatever 2013 has in store for us, we remain confident that we will make the best of it. We will manage the business prudently but we will not lose sight of the great medium term prospects for our business and will invest where appropriate to ensure that the Group's future lives up to its potential.