SThree delivered a robust net fee performance in Q1

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SThree plc (LON:STEM), the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics, has issued a trading update covering the period 1 December 2022 to 28 February 2023.

Highlights

Group net fees for the quarter up 4% YoY⁽¹⁾, in line with expectations.
Contract net fees up 8% YoY with growth across all regions, with Contract now representing 81% of Group net fees (Q1 2022: 77%, Q4 2022: 78%).
Permanent net fees down 12% YoY, reflecting market conditions, performance in USA and Life Sciences, and the planned transition from Permanent to Contract in several markets.
In our largest three markets, which represent 73% of net fees, Germany and the Netherlands grew 7% and 4% respectively, while USA was down 6%.
Technology up 8% and Engineering up 19%, while Life Sciences was down 15%.
Contractor order book ⁽²⁾ up 5% YoY (Q4 2022: up 19% YoY).
Robust balance sheet, with £64 million net cash as at 28 February 2023 (28 February 2022: £41 million, 30 November 2022: £65 million).

Timo Lehne, Chief Executive, commented:

“The Group has delivered a robust net fee performance in the first quarter of FY23 with fees up 4% YoY, in line with expectations, and supported by the strength of our well-established strategy, focused on STEM and flexible talent. The macro-economic environment remains uncertain, and we continue to see varied effects across our markets impacting new placements, offset by strong Contract extensions. Our Contractor Order Book underpins our near term visibility and continues to be a source of strength for the business, with Contract now representing 81% of Group net fees.

We have continued to make progress against our clear strategy which is centred on an analytical and fact-based approach of knowing where to play and playing where we can win. Our targeted investment in talent and digital infrastructure is progressing as planned, positioning the Group to scale with sustainable margins, in line with our 2024 ambitions.

Our long-term opportunity is unchanged, underpinned by structural megatrends which drive the acute need for scarce STEM talent. We are closely monitoring lead indicators across our markets as we navigate challenging macro conditions. Supported by a resilient business model and robust financial position, we remain well positioned to source and place the best STEM talent the world needs.”

Reporting structure change

SThree has changed its reporting structure, as shown in the tables below. Going forward, SThree will apply the new groupings of DACH, Netherlands (including Spain, which is managed from the Netherlands), Rest of Europe, USA and Middle East & Asia, as well as continuing to present the net fees of its five key markets: Germany, Netherlands, USA, UK and Japan. A table with the historical reporting structure is provided in the appendix.

	Q1	Q1	Q1 2023	Q4 2022	Q3 2022	Q2 2022	Q1 2022
Net fees	2023	2022	YoY ⁽¹⁾	YoY ⁽¹⁾	YoY ⁽¹⁾	YoY ⁽¹⁾	YoY ⁽¹⁾
Contract	£82.7m	£72.3m	+8%	+14%	+21%	+29%	+32%
Permanent	£19.9m	£21.5m	-12%	-5%	+10%	+5%	+18%
*GROUP*	*£102.6m*	*£93.8m*	*+4%*	*+9%*	*+19%*	*+23%*	*+29%*

Regions
DACH ⁽³⁾	£36.8m	£32.6m	+8%	+5%	+16%	+23%	+26%
Netherlands (incl. Spain) ⁽⁴⁾	£18.7m	£16.9m	+6%	+21%	+36%	+38%	+45%
Rest of Europe ⁽⁵⁾	£17.5m	£16.5m	+4%	+9%	+16%	+17%	+17%
USA	£24.3m	£23.5m	-6%	+3%	+9%	+16%	+27%
Middle East & Asia ⁽⁶⁾	£5.3m	£4.3m	+19%	+31%	+45%	+31%	+54%
*GROUP*	*£102.6m*	*£93.8m*	*+4%*	*+9%*	*+19%*	*+23%*	*+29%*

Top five countries
Germany	£32.7m	£29.3m	+7%	+3%	+13%	+20%	+24%
Netherlands	£17.9m	£16.3m	+4%	+21%	+36%	+38%	+45%
UK	£10.8m	£10.2m	+6%	+14%	+25%	+28%	+29%
USA	£24.3m	£23.5m	-6%	+3%	+9%	+16%	+27%
Japan	£2.1m	£2.0m	+7%	+55%	+44%	+25%	+78%
ROW ⁽⁷⁾	£14.8m	£12.5m	+12%	+12%	+23%	+21%	+19%
*Group*	*£102.6m*	*£93.8m*	*+4%*	*+9%*	*+19%*	*+23%*	*+29%*

Service mix	Q1 2023	Q1 2022
Contract	81%	77%
Permanent	19%	23%

Skills mix	Q1 2023	Q1 2022
Technology	49%	47%
Life Sciences	19%	23%
Engineering	24%	21%
Other	8%	9%

Business performance highlights

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The Group delivered a robust net fee performance in the quarter, up 4% YoY. Overall, our Contract business was up 8% and Permanent business was down 12%, reflecting the USA and Life Sciences performance, and the strategic transition from Permanent to Contract in several markets. Contract, our strategic focus, now represents 81% of net fees.

Contract

8^th consecutive quarter of growth with net fees up 8% YoY.

Growth across all regions: DACH was up 6% YoY, Netherlands up 9%, Rest of Europe up 11%, USA up 4% and Middle East & Asia up 70%.
Strong growth in Technology, up 9% YoY, and Engineering, up 23%, with Life Sciences down 8% reflecting softer market conditions against a strong comparator period in Q1 FY22.
The contractor order book was up 5% YoY (Q4 2022: up 19%).

Permanent

Permanent net fees for the first quarter were down 12% YoY, reflecting market conditions, recent office restructures and the strategic acceleration of our transition from Permanent to Contract in several markets.
- Robust growth in DACH up 11%. All other regions saw net fees decline in the first quarter.
- Technology was up 5% with Engineering down 6% and Life Sciences down 39%, reflecting a combination of the softer market conditions against a strong comparator period, together with the transition towards Contract.

Headcount and productivity

Group period-end headcount was down 4% vs Q4 2022, though this movement included reductions related to the restructure of the Singapore, Hong Kong and Ireland businesses. On a like-for-like basis, Group period-end headcount was down 2% vs Q4 2022.
Group average headcount in the quarter was up 9% YoY.
We continue to invest in line with our previously stated strategy of focusing on specific niches within sectors and markets where we can gain valuable market share. While we are managing costs tightly, a highly disciplined and targeted investment in talent acquisition within Contract remains a priority for the business, maintaining the ability to take advantage when trading conditions improve.
As expected, and as previously communicated, we have seen some normalisation of productivity as new hires come on board and net fee growth rates normalise, with Q1 productivity down 5% YoY.

Regional highlights

DACH saw net fees grow 8% YoY

Growth in Contract and Permanent up 6% and 11% YoY, respectively.
Germany, our largest country in the region, delivered net fee growth of 7% driven by:
- Technology up 11% due to demand for roles within Cyber Security and Software Development.
- Engineering up 21%, with higher demand for Construction roles.

Netherlands region saw net fees grow 6% YoY

The Netherlands, which represents 95% of net fees for the region, saw net fee growth of 4% YoY driven by:
- Technology up 6% with increased demand for Project Managers, ERP Consultants, Data Engineers and Data Science roles.
- Engineering up 2% due to demand for Process Engineers, Electrical Engineers and Health & Safety Advisors.

Rest of Europe saw net fees grow 4% YoY.

Contract, which represents 94% of net fees for the region, grew 11% YoY, which more than offset the 45% decrease in Permanent net fees, due to both market conditions and the transition towards Contract, particularly in the UK.
The UK, our largest country in the region, saw net fee growth of 6%, driven by:
- Technology up 7%, as demand increased for Software Engineers and roles within Digital Transformation.

USA saw net fees decline 6% YoY

Contract business, which now represents 85% of net fees, was up 4% YoY driven by:
- Engineering up 29%, with increased demand for roles within Project Management, Electrical and Mechanical Engineering.
Permanent, which represents 15% of net fees, declined 40% YoY driven by Life Sciences as we face very strong prior year comparatives in addition to the accelerated transition towards Contract.

Middle East and Asia saw net fees grow 19% YoY.

Japan, which represents 39% of the region, was up 7% YoY driven by Life Sciences due to increased demand for roles within Pharmaceuticals & Biotechnology.
Strong performance in UAE with net fees up 67% driven by Engineering.

Balance sheet

SThree remains in a robust financial position, with net cash at 28 February 2023 of £64m (28 February 2022: net cash £41m, 30 November 2022: net cash £65m). Total accessible liquidity of £119m comprises £64m net cash, a £50m revolving credit facility (‘RCF’), which runs until 2025 (with options to extend it until 2027), and a £5m overdraft facility (RCF and overdraft fully undrawn). In addition, SThree has a £20m accordion facility as well as a substantial working capital position, reflecting net cash due to the Group for placements already undertaken.

Analyst conference call

SThree is hosting a conference call for analysts and investors today at 8.30am to discuss the FY23 Q1 trading update. If you would like to register for the conference call, please contact [email protected].