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SThree declares group gross profit up 18%

Continued strong performance from newer sector disciplines - Energy up 43%* year on year, Life Sciences up 43%* year on year

Review and rationalisation of a number of sub-scale operations, with resources redeployed and reprioritised to USA, where the Group is doubling its office space in New York, Boston, Houston and San Francisco.  Exceptional charge of circa &pound3m to &pound4m to be taken in 2014

Gary Elden, chief executive, commented, "Against a backdrop of a continued improvement in macroeconomic conditions in a number of our markets, we have had an encouraging third quarter. Contract had another strong quarter, driven by new high growth markets, particularly the USA, Energy and Life Sciences. 

"Contract gross profit increased by 28%* year on year and now accounts for 62% of the Group total. Permanent was up 6%* year on year in Q3, a broadly stable performance versus Q2. The Permanent pre-deal pipeline is looking significantly stronger, pointing to an improving gross profit picture over the next 3-6 months.  

"In line with our objective of improving returns from our international office network we took the opportunity to rationalise elements of our Banking & Finance business and exit certain sub-scale businesses during the period. Resources have been redeployed to our operations in the USA which continue to grow very strongly, with gross profit ahead by 75%* year on year in Q3.

"The fourth quarter is traditionally our most significant trading period and this will be accentuated in the current year by the pattern of headcount investment.  Looking further ahead, the strength of our Contract book and improving pre-deal trends for Permanent give us confidence for the business in the medium term."

Key Metrics & Commentary

 

Q3 2014

Q3 2014

Q2 2014

Q1 2014

Gross Profit

Q3 2014

LFL 5

Q3 2013 1

YoY % Var 2

YoY % Var 2

YoY % Var 2

 

 

 

 

Contract

&pound34.1m

&pound34.1m

&pound27.9m

28%

26%

18%

Permanent

&pound21.0m

&pound21.6m

&pound21.9m

6%

7%

-4%

Group

&pound55.1m

&pound55.7m

&pound49.8m

18%

18%

9%

 

 

 

 

UK&I

&pound16.6m

&pound16.6m

&pound15.3m

9%

10%

1%

Continental Europe

&pound23.8m

&pound24.4m

&pound23.2m

12%

12%

4%

Americas

&pound9.4m

&pound9.4m

&pound5.9m

75%

74%

49%

Asia Pac & Middle East

&pound5.3m

&pound5.3m

&pound5.4m

11%

12%

13%

Group

&pound55.1m

&pound55.7m

&pound49.8m

18%

18%

9%

 

 

 

 

ICT

&pound21.3m

&pound21.7m

&pound21.1m

8%

2%

-5%

Non ICT

&pound33.8m

&pound34.0m

&pound28.7m

26%

31%

20%

Group

&pound55.1m

&pound55.7m

&pound49.8m

18%

18%

9%

 

 

 

 

Contract / Permanent Split

 

 

 

Contract

62%

61%

56%

 

 

Permanent

38%

39%

44%

 

 

100%

100%

100%

 

 

 

 

 

 

Geographical Split

 

 

 

UK&I

30%

30%

31%

 

 

Continental Europe

43%

43%

47%

 

 

Americas

17%

17%

12%

 

 

Asia Pac & Middle East

10%

10%

11%

 

 

100%

100%

100%

 

 

 

 

 

 

Sector Split

 

 

 

ICT

39%

39%

42%

 

 

Non ICT

61%

61%

58%

 

 

100%

100%

100%

 

 

 

 

 

 

 

Q3 2014

Q3 2014

Q2 2014

Q1 2014

Operating Metrics

Q3 2014

LFL 5

Q3 2013 1

YoY % Var

YoY % Var

YoY % Var

 

 

 

 

Contract Runners 3

 

 

 

UK&I

2,857

2,857

2,437

17%

14%

8%

Continental Europe

2,724

2,724

2,272

20%

17%

10%

Americas

972

972

462

110%

130%

96%

Asia Pac & Middle East

397

397

229

73%

64%

67%

Group

6,950

6,950

5,400

29%

26%

16%

 

 

 

 

Permanent Placements 4

 

 

 

UK&I

424

424

479

-11%

-4%

-15%

Continental Europe

551

596

667

-11%

-12%

-13%

Americas

260

260

161

61%

67%

23%

Asia Pac & Middle East

325

325

337

-4%

17%

33%

Group

1,560

1,605

1,644

-2%

1%

-4%

 

 

 

 

1. Excluding IT Job Board

2. At Constant currency and adjusted (see note 5)

3. Period end number of contractors onsite with clients and being billed

4. Excludes Retainers

5. Q3 2014 has been adjusted to reflect the timing of permanent placements in Germany on a LFL basis. The majority of placements in Germany start on the first day of a calendar month. Q3 2014 has two first days of a calendar month vs 3 first days of a calendar month in Q3 2013 and Q2 2014. 2014 will contain 11 first days of a calendar month vs 13 first days of a calendar month in 2013.

Group gross profit increased by 18%* year on year in Q3 and by 7%* sequentially versus Q2.

Contract performed very pleasingly in the period, with a strong growth in contract runners up 7% since the half year. Average contractor gross profit per day rates remained robust during the quarter.

Permanent gross profit in Q3 grew by 6%* year on year, versus Q2 2014 which was up 7%*. UK&I was down 11%* (Q2 2014 up 4%*), Continental Europe was flat (Q2 2014 down 5%*) and Rest of World grew by 23%* (Q2 2014 up 28%*), driven by strong performance in the Americas. Average permanent placement fees remained robust during the quarter.

Group sales headcount at 31 August 2014 was up 9% versus the year end and up 15% year on year. Year on year, UK&I sales headcount was up 14%, Continental Europe sales headcount was up 12% and Rest of World sales headcount was up 20%. Consultant headcount continued to remix slightly towards contract during the quarter, with contract consultant numbers up 13% and permanent consultant headcount up 3% since the year end. Average consultant headcount for the quarter was up 17% year on year, with contract consultant average headcount up 26% and permanent consultant average headcount up 10%.

The Group has a network of 48 offices in 19 countries, of which 34 are outside the UK. The Group now generates 70% of gross profit from markets outside UK&I (2013: 69%).

SThree remains in a strong financial position. Net debt at 31 August 2014 was circa &pound28m and is expected to reduce significantly in the fourth quarter due to usual seasonal factors. The Group has a &pound50m revolving credit facility ("RCF") with RBS and HSBC, committed to 2019.

Exceptional Costs

As indicated at the recent Capital Markets Day, SThree is focused on improving returns from its office network.  In line with this strategy, the Group is undertaking a review of its operations, to identify opportunities to refocus resources and effort away from sub-scale businesses that have little prospect of moving into profit in the foreseeable future towards those operations which will deliver the greatest return over the medium term. As a result, the Group has rationalised its Banking & Finance operations, closing offices in India and Brazil, and restructuring teams in Benelux and Switzerland, with resources re-deployed towards New York, Boston, San Francisco and Houston, where recent investment will double its office space.  In addition, Energy markets in Brazil and Canada will now be served from Houston and the Group's small, representative offices in Rio de Janeiro and Calgary will close. 

As a result of these actions, an exceptional cost of circa &pound3m-&pound4m is expected to be taken in the Group results for the year. It is anticipated that these actions will largely pay back in 2015 and, while we intend to reinvest the savings in our businesses with strong medium term growth prospects, these actions will also help to underpin current expectations for that year.

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