SThree’s operating profit up 9% YoY
SThree has released its interim results for the half year ended 31st May 2016.
The group reported revenue of £443.5m, up from £403.6m in H1 2015, an increase of 8%.
Adjusted operating profit is up 9% year-on-year ("YoY") to £15.3m (H1 2015: £14.1m), with adjusted operating profit conversion ratio unchanged at 12.8% (H1 2015: 12.8%).
Gross profit is up 6% YoY and ahead by 11%, excluding energy.
The company reported continued strong growth across ICT (up 18% YoY).
SThree states its strongest growth is in Continental Europe (up 18% YoY).
Germany performed particularly well, with GP ahead by 22%. In Continental Europe, the group saw double digit growth in contract runners YoY, creating a strong exit rate for contract gross profit, as well as improved consultant productivity in permanent. Highlights in the region include the ICT sector up 19%, engineering up 37% and life sciences sectors up 16%. Average sales headcount was up 9% with contract up 13% and permanent up 3%.
USA gross profit is up 6% YoY (up 20% excluding energy), reflecting tough trading conditions in the energy and banking & finance sectors.
The UK market was impacted by uncertainty in lead up to EU referendum and there was a slowdown in banking & finance sector. Gross profit was down 5% YoY, with the performance weakening in Q2, when GP was down by 9% YoY. In H1, energy was down 47%, banking & finance down 19%, and engineering down 23%. Contract headcount is expected to remain broadly flat for the remainder of the year and permanent headcount will continue to reduce as we do not replace heads that churn and remix our headcount to maximise productivity.
The group’s Asia Pacific businesses were impacted by the downturn in the energy market and this is reflected in the YoY drop in gross profit in the period, down 15%. The energy sector was down 44% YoY and now represents 20% of the region (2015: 31%). Asia Pacific is also feeling the impact of slowing growth in China with reduced demand for energy, mining and minerals and a tough banking market. The Middle East has, however, shown promising growth on contract.
Conditions in the energy market remain challenging – gross profit is down 31% YoY.
Contract gross profit is up 11% YoY and ahead by 14%, excluding energy. Contract now accounts for 67% of Group gross profit (H1 2015: 64%).
Permanent gross profit is down 2% YoY but productivity improved by 5% YoY following a decrease in average sales headcount of 7%. Permanent gross profit, excluding energy is up 6% YoY.
Group period end sales headcount is down 2% on the 2015 year-end position and up 4% YoY, driven by investment in contract. Average sales headcount up 6% YoY.
Gary Elden, CEO, commented, "We experienced mixed trading conditions in the period. Our contract business, which now represents more than two thirds of the Group, continued to perform well, with gross profit increasing by 11% year on year. ICT growth was strong, with gross profit ahead by 18% year on year, and Continental Europe was once again our fastest growing region. However, slowdowns in the global banking market and in the UK, and the ongoing weakness in Energy, all impacted on our first half growth rate.
"While it is too early to assess the impact of the EU Referendum result, the effect on client and candidate confidence in our UK business will become clearer as we trade through our seasonally more important second half.
"Looking ahead, the Group's weighting towards the more resilient Contract market, where we continue to see good growth momentum, and our diversified portfolio of geographies and sectors, give us confidence that we can optimise our performance, whatever the prevailing market opportunity."
Connor Campbell, a senior market analyst at www.spreadex.com, added, “It looks like SThree might be struggling to find recruits, the firm becoming another Brexit casualty as companies, especially in the banking sector, put off hiring in the run-up to the referendum. That caused SThree’s first half profit to plunge by 8%, leading its stock to fall just over 2.5% to leave it back near 4 and a half year lows.”