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PBT up 18% YoY in H1 2019 for SThree

SThree has released its results for the half year ended 31st May 2019.


Revenue for the year was up 10% on a constant currency basis to £653.3m (HY 2018: reported £585.9m) and up 12% on a reported basis. On a constant currency basis, net fees increased by 9%, and on a reported basis by 10% to £163.0m (HY 2018 £148.4 million). Growth in revenue exceeded the growth in net fees as the business continued to shift towards contract. Contract represented 74% of the Group net fees in the period (HY 2018: 72%). This change in mix resulted in a modest decrease in the overall net fees margin to 24.9% (HY 2018: 25.3%), as Permanent revenue has no cost of sale, whereas the cost of paying the contractor is deducted to derive Contract net fees. The Contract margin increased slightly to 19.8% (HY 2018: 19.6%).


The reported profit before tax was £22.7m, up 27%. The adjusted profit before tax ('PBT') was £24.0m up 18% YoY (HY 2018: reported £17.8m and adjusted £20.3m). The 'adjusted' PBT excludes restructuring costs of £1.3m that were incurred in the current period in respect of the senior management changes and relocation of support functions to Glasgow (HY 2018: £2.4m). The benefits of operational efficiencies delivered by the restructuring of our support functions contributed to the increase in the operating profit conversion ratio of 1.4 percentage points to 15.1% on an adjusted basis and 2.2 percentage points to 14.3% on a reported basis (HY 2018: adjusted 13.7% and reported 12.1%).


Mark Dorman, CEO, commented, "This set of results, the first since I joined the Group, demonstrates that our strategy is putting SThree ahead of the field. The engine room of our growth has continued to be the key strategic focus areas of our business - progress within the key STEM markets, particularly the USA and Continental Europe, as well as an increased Contract weighting.


"Alongside our teams having capitalised on these major structural trends, it has been pleasing to note a number of other highlights for the Group. Our small but rapidly growing Permanent business in Japan, the strong performance for Energy in the US driven by trends to renewable energy and power transmission, and the strengthening of our market leading position in Life Sciences, where we continue to benefit from the emergence of new sector technology and data analytics.


"To build on this growth, we are continuing to strategically invest in the areas of the business which present the greatest opportunity, consistent with our vision to be the number one STEM talent provider in the best STEM markets. With the scale of the opportunity available to us, we look forward to continuing to execute in the period ahead.


"Notwithstanding the macro-economic backdrop in certain regions, the Group remains well positioned as we enter the second half, and the Board's expectations for the full year remain unchanged."


Continental Europe is the company’s largest region comprising businesses in Germany, Switzerland, Austria, Netherlands, Belgium, France, Luxembourg and Spain. The region delivered strong growth in the period with increasing net fees across all main country markets. DACH, its largest territory in the region was up 15% YoY and we continued to invest with average headcount up 8%. Netherlands also performed strongly, with net fees ahead by 11% YoY and average sales headcount up 15%. Contract growth in technology, our largest sector, was very strong, up 19%. This was supported by engineering, which grew 40%.


The region delivered double digit growth in contractors, up 12% YoY, creating growth opportunities for H2, with Net Fees per Day Rate ('NFDR') up by 1%. Net fees in this region performed particularly well against very strong prior year comparatives. Growth was also delivered in permanent, driven by DACH up 9%. This was in part down to an increase in average fees for technology, banking and finance alongside energy.


In the USA, there was growth of 13% YOY in the region across its major sectors technology, life sciences and energy. Life sciences, our largest sector in the region, grew 10% YoY. Energy continued to improve in the region up 68% with technology up 10%.


Contract net fees in USA were very strong up 22% YoY with double-digit growth across all sectors except banking & finance which declined in line with global trends. Energy performance was very pleasing, with net fees up 73% YoY as SThree continue to develop its customer portfolio, build on its position in renewable energy, power transmission and upstream alongside broadening its service offering.


Permanent net fees declined 10% YoY, largely due to the following previously announced leadership and strategic changes made to the division. These changes were implemented to create a platform for more consistent and balanced growth.


In the UK&I, following the previously reported restructuring, net fees in the region were down 9% YoY, with a 2% YoY reduction in average headcount.


In line with the broader group strategy, the region is increasingly contract focused as it has cautiously invested in specific opportunities within the STEM market. Following a recently increased focus, SThree saw growth in life sciences, however this was offset by decline in all other sectors. Overall its contract business saw a decline in performance with net fees down 6% YoY. Reflecting continued macro-economic and political uncertainty, permanent net fees declined 25% YoY.


SThree’s APAC & ME business principally includes Japan, Australia, Singapore and Dubai. APAC & ME represented 6% of Group net fees, a slight increase from 5% at the end of 2018. Contract performance was strong in the period, led by its Dubai business, up 42%, with growth in banking & finance and energy sectors.


Growth in permanent net fees in the region was primarily driven by Japan, which was up 49% YoY, with strong growth in life sciences and technology.


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