SThree announce group gross profit up 18% YoY
Operating profit before exceptional items
Gain on disposal of ITJB
Operating profit after exceptional items
Profit before taxation and exceptional items
Profit after taxation before exceptional items
Basic earnings per share before exceptional items
Proposed final dividend
Total dividend (interim plus final)
Operating profit conversion ratio
· Improved overall performance with Group gross profit ("GP") up 18%* year on year ("YoY") as greater strategic focus on Contract continues to produce results
· Operating profit (before exceptional items) increased 42% to £29.8m (2013: £21.0m), despite FX headwinds of £1.8m
· Group conversion ratio up 2.8 percentage points to 13.7% (2013: 10.9%)
· Significant progress made against our key strategic priorities - Contract, ongoing sector diversification and international growth
· Contract GP grew by 27%* YoY, and now accounts for 61% of Group GP (2013: 56%)
· Strong growth in number of Contract runners, up 31% YoY at 7,573 at year end (2013: 5,791), establishing a strong platform for 2015
· Permanent GP up 6%* YoY with growth accelerating to 16%* in Q4
· Non-UK&I share of GP increased to 70% (2013: 69%)
· Continued sector diversification with non-ICT disciplines now representing 61% (2013: 57%) of GP
· Strong performances from our newer sector disciplines with Energy up 51%* and Life Sciences up 42%* YoY together now representing 32% of GP (2013: 27%)
· Excellent performance in the Americas (up 73%* YoY), now representing 15% of Group GP (2013: 11%), driven by the USA
· Group total headcount at year end increased by 11% to 2,578 (2013: 2,327) and Group average headcount was up 12% YoY at 2,487 (2013: 2,228)
· Group year end sales headcount up 12% YoY at 2,081 (2013:1,862) and average sales headcount up 15% YoY at 2,002 (2013: 1,736)
· Review and rationalisation of a number of sub-scale operations, with resources redeployed and reprioritised to the USA, where the Group is doubling its office space in New York, Boston, Houston and San Francisco
· Net debt of £9.9m at the year end.
* variances in constant currency and FY14 GP is adjusted due to timing of period ends (an additional £0.6m in DACH)
** includes ITJB
Gary Elden, CEO, commented, "The Group delivered an improved performance during the year, with a strong finish in the fourth quarter, as we continued to benefit from our increasing exposure to newer high growth markets, particularly the USA and the Energy and Life Sciences sectors. Our investment in Contract was reflected in another year of strong growth from this business and Permanent also improved its performance, with growth accelerating in Q4. Our focus on operational efficiencies helped deliver an operating profit before exceptional items of £29.8m, an increase of 42% on the prior year.
"At this early point of the new financial year, while improved sentiment is clearly evident in most of our markets, it is still a somewhat mixed picture. Activity levels over the coming weeks will give an indication of the market the Group will trade in during 2015 and while we are mindful of the risks we face today, we expect to see a broadly supportive picture globally.
"The strength of the Contract book and improving Permanent performance gives us a strong base from which to grow the business. While greater economic uncertainty in the Eurozone and a significant reduction in global oil prices in recent months have added some caution to the outlook, our experienced management team and strong financial position give us the confidence that we will make the most of the market opportunity in 2015."
CHIEF EXECUTIVE OFFICER'S REVIEW
The prior period results comprised 53 weeks. For comparison purposes, 52 week data excluding the results of the IT Job Board business ("ITJB"), which was disposed of in 2013, has been presented as Like-for-Like ("LFL") figures.
The Group delivered an improved performance during the year with a strong finish in Q4. We continue to see a robust overall GP performance and, although the performance varies significantly by country and sector, overall growth remains strong. This is reflected in 18%* YoY growth in Group GP largely driven by Contract and growth in our newer businesses, especially the Americas. Our newer sectors, Energy and Life Sciences, continued to perform strongly across most of our geographies and they are making an increasingly important contribution to the Group results.
Contract continued to benefit from the greater strategic focus and our investment in headcount, resulting in encouraging growth in Contract runners and GP. Contract now accounts for 61% of Group GP (2013: 56%). Permanent also improved its performance, with GP increased by 6%* YoY but up a pleasing 16%* YoY in Q4, although there remains more work to do to return its productivity to historic levels.
Period end Group sales headcount was up 12% YoY which leaves us well positioned for future growth.
During the year, we focused on driving up the productivity of existing teams and offices across the Group. As a result, no new offices in new geographies were opened during the year and we closed a small number of sub scale offices. In 2015, any new investment in further territories will more likely be led by specific client requirements.
We remain committed to the dividend and are pleased to maintain the total ordinary dividend for the year at 14.0p (2013: 14.0p).
Group GP for the year was up 18%* to £218.2m (2013: £192.8m). Profit before tax for the year (before exceptional items) was up 41% to £29.3m (2013: £20.8m). The growth in profitability reflects improved economic conditions for much of the year supporting higher sales headcount and improved consultant productivity, combined with the reduced cost base as a result of the 2013 and 2014 restructurings.
The Group ended 2014 with a total headcount of 2,578 (2013: 2,327) an increase on the prior year end of 11% and building on a significant increase in headcount in the latter months of the 2013 financial year. The Group average headcount was up 12% at 2,487 (2013: 2,228), reflecting the targeted investment in sales headcount during the course of the year to capitalise on stronger markets and sectors.
Group sales headcount at 30 November 2014 at 2,081 (2013: 1,862) was up 12%. UK&I sales headcount was up 14% YoY, Continental Europe sales headcount was up 8%, Americas sales headcount was up 39% and Asia Pacific & Middle East sales headcount has dropped slightly by 1% YoY, due to changes in the regional delivery model.
Consultant headcount mix continued to shift in favour of Contract during the year, with Contract consultant numbers up 19% and Permanent consultant headcount up 5% since the 2013 year end. At the end of the year, Contract consultant headcount represented 53% of the total consultant headcount making it the larger business division by headcount for the first time in the Group's history.
At the Investor Day in June 2014 we outlined five key areas of strategic importance, which form the basis of our Five Point Plan for Growth:
1. Regional Growth Opportunities
We continued to focus on building scale and critical mass in the countries where we already operate. The Group has 45 offices in 18 countries, of which 33 are outside of the UK. No new offices were opened during the year. Much of the Group's international growth during the year came as a result of driving up the returns from our existing locations and sectors. As part of this approach, the Group rationalised sub-scale sales operations in Brazil, Canada, Australia and India, with certain resources redeployed and reprioritised to our USA operations, where the Group is doubling its office space with new offices in New York, Boston, Houston and San Francisco.
The Group generated £151.9m of GP from outside of the UK&I (2013: £132.9m), up 22%*. The geographical business mix continues to shift in favour of our international operations and the ratio was 70:30 in favour of non UK&I GP (2013: 69:31).
UK&I GP was up 11%* YoY to £66.3m (2013: £59.9m), driven by a 14%* increase in Contract GP in line with a 15% increase in average Contract consultant headcount. In the UK&I, period end contractors were up 16% YoY, while GP per day rate ("GPDR") remained broadly level YoY. While UK&I Permanent placements were down 1% YoY, average fees increased by 2%* YoY.
Continental Europe GP at £99.4m (2013: £93.7m) was up 11%* from the prior year, again mainly due to a strong performance in the Contract business within the DACH region, with notable contributions from the Energy and Life Sciences sectors. Contract GP was up 23%*, with period end contractors up 24% YoY while GPDR remained level YoY. Although Permanent placements were down 7%* YoY, average fees remained level YoY.
The Group generated overall GP from the Americas of £33.4m (2013: £20.5m), up 73%* YoY. The region now represents 15% of Group GP (2013: 11%), with the USA being the main driver of this performance. The major contributors to growth in the USA were the Energy, Life Sciences and Banking & Finance sectors, which were up 83%*, 73%* and 45%* YoY respectively. Americas Contract GP was up 98%* YoY and period end contractors increased by 97% YoY, while GPDR reduced by 6%* YoY as we accessed a wider range of specialist roles. Americas Permanent placements increased by 51% YoY while average fees fell by 3%* YoY, mainly due to sector mix. Our performance in the USA continues to be highly encouraging and we see significant opportunities to maintain these high levels of growth.
Asia Pac & Middle East GP at £19.1m (2013: £18.6m) was up 14%*, with Life Sciences and Energy up 59%* and 21%* YoY respectively. Permanent placements increased by 9% YoY, while average fees fell by 6%* YoY. Contract GP was up 62%* YoY and contractors increased by 104% YoY, while GPDR fell 10%* YoY as we opened up Contract in a broader range of sectors.
2. Sector Diversification and Expansion
SThree is focused on the following five core sectors: Information & Communications Technology ("ICT"), Energy, Engineering, Life Sciences and Banking & Finance. In line with its strategic objective, the Group made significant progress growing its newer sectors during the year, particularly Energy and Life Sciences.
ICT represented 39% of Group GP (2013: 43%). ICT is our largest 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. We have seen exciting early results from an initial roll out of ICT beyond the UK and Europe, particularly in the USA. ICT GP for the year of £86.1m (2013: £83.7m), was up 8%* YoY.
Non-ICT enjoyed very strong growth and overall GP grew by 26%* YoY at £132.1m (2013: £109.1m). The major contributors were Energy up 51%* (15% of Group GP), Life Sciences up 42%* YoY (17% of Group GP) and Banking & Finance up 19%* YoY (18% of Group GP).
Contract remained a key area of strategic focus during the year and we continued the investment in headcount in this area which started in H2 last year. Year end consultant headcount in the Contract business was up 19% YoY at 935 (2013: 786). Headcount growth combined with increasing exposure to new high growth markets, particularly Energy and Life Sciences, resulted in a 27%* YoY increase in Contract GP.
After successfully running an employed contractor model ("ECM") in the USA, the Group is in the process of evaluating further opportunities in Continental Europe and Asia Pac & Middle East regions. The Contract exit growth rate during the year was very pleasing, with year end runners up 31% to 7,573 (2013: 5,791), giving the Group a strong platform to build from in 2015.
During the year, the Group made 6,601* Permanent placements (2013: 6,429), a 3% increase YoY, and average fees remained robust. Overall Permanent GP grew by 6%* YoY as Permanent finished the year with a strong Q4. Year end consultant headcount in our Permanent business was up 5% YoY at 831 (2013: 794) and we expect to see an improved performance in this business as this newer headcount matures, which improves productivity.
As a result of the stronger Contract performance, 2014 saw a further re-mixing of our business in favour of Contract, with Contract GP now representing 61% of Group GP (2013: 56%). The further evolution of this metric in the near term will be to some extent dictated by the macro-economic backdrop in 2015. In a more challenging environment Contract tends to be more resilient but in an improving market, Permanent can recover very quickly. However, both Permanent and Contract benefit from improving sentiment - Permanent being more driven by candidate confidence impacting on churn and Contract being more impacted by client confidence. We remain committed to our strategy of operating a balanced business with a significant presence in both Contract and Permanent markets.
4. Organic Growth/M&A
The Group remains an organically grown business with most businesses set up and led by home grown talent. However, where necessary, we have also hired key personnel to grow our business in specific regions such as Japan and Russia and within the Energy sector. We were pleased to have strengthened our Energy business with the appointment of a Advisory Chairman, James Barbour-Smith, to our Energy Board. James was formerly a Head of Portfolio Management and a Partner of Gresham Private Equity and the Executive Chairman of Swift Worldwide Resources, a leading global oil and gas recruiter.
We continue to actively review opportunities for small bolt on acquisitions of businesses that would expedite our access into new geographies and sectors where we see the appropriate opportunities and returns.
5. Infrastructure for Growth/Ongoing Business Reviews
Our office infrastructure is approximately 80% occupied, with significant capacity available in our new US offices, in particular, to support our strong growth trajectory. We have also invested in further office space in Japan and Singapore in the year.
We are proud of the global IT infrastructure that we have in place which gives us market leading insight as well as enabling us to support significantly higher consultant headcount with limited additional support costs. We continue to invest to maintain our market leading position and will benefit from operational gearing into recovery.
Non Executive Directors
In July 2014 we welcomed Fiona MacLeod to the Board. Fiona was a senior executive at BP, having 23 years of international energy sector experience. She has also sat on a range of Joint Venture and Investment Boards across some 20 countries. Her breadth of international business and commercial knowledge and particular expertise within the Oil & Gas sector has already been of great benefit. Fiona is also serving on SThree's Remuneration and Audit Committees.
Alicja Lesniak has decided to step down from her role as Non Executive Director and Audit Committee Chair, at the AGM in April 2015, in order to concentrate on her other roles. Alicja joined the Group in 2006, shortly after the Group's listing, and has been instrumental in ensuring that our finance, governance and auditing arrangements have evolved to the high standard necessary for a respected listed company. Alicja has made a valued contribution to our mentoring and diversity projects, whilst our Internal Audit function, newly created in early 2008, has also benefited from her wise counsel. She will be missed and the Board joins me in thanking Alicja for her contribution.
We are already well advanced in our search for further Non Executive Directors, particularly those with strong financial experience, to complement our Board and take over the Audit Committee Chair.
At this early point of the financial year, while improved sentiment is clearly evident in most of our markets, it is still a somewhat mixed picture. Activity levels over the coming weeks will give an indication of the market the Group will trade in during 2015 and while we are mindful of the risks we face today, we expect to see a broadly supportive picture globally.
Looking ahead, the strength of the Contract book and improving Permanent performance gives us a strong base from which to grow the business. While greater economic uncertainty in the Eurozone and a significant reduction in global oil prices in recent months have added some caution to the outlook, our experienced management team and strong financial position give us the confidence that we will make the most of the market opportunity in 2015.