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SThree issues trading update

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

&pound87.0m

&pound85.3m

&pound97.8m

-14%

-15%

-11%

Contract

&pound109.7m

&pound107.5m

&pound101.7m

4%

4%

7%

Group

&pound196.7m

&pound192.8m

&pound199.5m

-5%

-5%

-2%

 

 

 

 

UK&I

&pound61.0m

&pound59.8m

&pound66.9m

-11%

-10%

-9%

Non UK&I

&pound135.7m

&pound132.9m

&pound132.5m

-2%

-3%

1%

&pound196.7m

&pound192.8m

&pound199.5m

-5%

-5%

-2%

 

 

 

 

ICT

&pound85.2m

&pound83.6m

&pound91.3m

-10%

-13%

-5%

Non ICT

&pound111.5m

&pound109.2m

&pound108.2m

-1%

1%

1%

&pound196.7m

&pound192.8m

&pound199.5m

-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 &pound9.2m (including &pound1.2m of cash transferred with the business), plus a further &pound3.0m, dependent upon the achievement of certain financial targets ending in 2014.

The Group ended the year with net cash of circa &pound8m.

The restructuring of the Group's property portfolio and support functions is now largely complete and is expected to generate cost savings of circa &pound8m 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.

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