SThree plc (STEM) Earnings Call Transcript & Summary

Welcome to the SThree Full Year 2020 Results Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Mark Dorman, CEO; and Alex Smith, CFO. Mark, over to you.

Thank you, [ Tamsin ], and welcome, everyone. Good morning, and welcome to SThree's full year results presentation. Now before we get started, and you will have seen in our announcement this morning that my colleague and partner in crime, Alex Smith, will be stepping down after 12 really successful years at SThree. He's not going anywhere immediately. He's going to help us make sure we get the right successor, but those are big shoes to fill, and have a good and successful handover and transition. So very smooth and professional, as Alex has always been. I'd just like to say on behalf of SThree, a big thank you to Alex for all of his hard work, commitment and dedication over the 12 years or so that he's been at SThree and has made a really important and impactful contribution to the organization. And on a personal note, I just want to say thank you. He's been a terrific partner to me personally in helping and guiding me over these almost 2 years since I came into SThree. As CEO, I couldn't have asked for a better CFO to help me guide the business. So thank you, Alex. And he may want to have some comments where we get to his section. But thank you for all of that. So why don't we get started? So 2020, it was quite a year for everyone. But I have to say that it's our purpose at SThree of bringing skilled people together to build the future and our strategy of focusing on STEM talent and flexible working has never felt more relevant or more right. And just as a reminder, we focus on STEM talent and the domains within there in Life Sciences, Technology and Engineering and flexible working is a mix of permanent employment but most of our business now, 76% is contract, both employed contractors and freelance contractors that you can see there. That's the core of our business and being at the center of those 2 long-term secular threats. Now certainly, and I'm sure we can all agree that what 2020 has shown us is certainly the importance of people with life science, technology and engineering skills in solving the immediate problems in front of us as well as the long-term problems and coming up with solutions and capturing the opportunities as we all head into the fourth industrial revolution. So on flexible working, and this is also an incredibly important and another long-term secular trends. 89% of staffing revenue in 2019 was temporary staffing of which 43% of that relates to professional staffing and, of course, the professional staffing, that STEM talent is a portion of that. And it's particularly relevant, not just because of the 7 attractive components here, but also it fits well with STEM talent and the expectations of their working life because most of the work they do tends to be fixed-term and high-impact projects, and they see their career through a step through of those projects. And similarly, companies trying to access that in demand in short supply, highly valuable talent and find it a very effective -- both cost-effective and valuable way of accessing that talent to temporary contracts. Additionally, for SThree, the recurring nature of that model is very attractive economically to us. And as you can see there, has a 40% greater lifetime value than the permanent equivalent. So a very attractive model. We're at the center of those 2 long-term secular trends. And with our global footprint that makes us unique, we are the only global pure-play STEM specialists. And a combination of great execution by the team the right purpose, focus on the right strategy inside those terms have really led us to have a resilient performance in 2020, delivering this financial performance. I won't take too much of Alex's thunder because he'll walk us through the financial performance in just a little bit. But you can see that against a once-in-a-century event, aggregate demand down dramatically across all sectors. And we delivered net fees down 8% and an operating profit adjusted of GBP 31.3 million. We've got an incredibly strong balance sheet of GBP 50 million, and we've seen an increase, as I said, of our Contract business mix, up from 74% in 2019 to 76% in 2020 as a portion of our overall net fees. And you can see that we are truly a global company with 89% of our net fees being generated outside the U.K. COVID-19 and the global pandemic has obviously impacted every aspect of our world, both professionally and personally, and so I wanted to take a few moments just to talk about our response to that and how we've adapted and are playing our part in the pandemic. Our focus on operational excellence has really delivered our results. And despite a global pandemic, as I said, a once-in-a-century event, we continue to make progress against the Capital Market Day ambitions that we set out in November 2019, which I have to say, seems like a lifetime ago now. But we have continued to have market share gains in the U.S.A., in Germany, in the Netherlands as well as in the U.K. despite demand being down dramatically. Impressively as well, our Net Promoter Score has increased from 44 to 52, a high number to begin with, but increasingly, showing the value of the services that we provide to our clients and a reflection of the real focus we have in engaging with both our candidates and our clients through this very challenging time and ensuring that we were serving their needs and adding value through the cycle. You can see a sequential improvement across the half in those 4 key metrics that we measure on an ongoing basis in sales activity, our contractor retention rates, our contractor order book and our productivity per head up year-over-year sequentially across the half. And Alex will go through some more of that in detail when we get to the performance. And the way in which we operated through the pandemic was really execution guided by our purpose. First of all, we set out a framework of how the pandemic would unfold. And indeed, it's set out to be the same. We had the initial response back in February and March of 2020. Then we entered in the long phase of ongoing management of a very volatile situation, which is the phase we're in now, with rolling lockdowns and unlocked going through many of the markets we operate in. And then ultimately, when we get a resolution to what is still a public health crisis, we will then enter a recovery phase at some point in the future. Our framework then gave us a set of key focus areas for the business and how we would execute the business, knowing that we were taking the decision to operate the business regardless of the situation on the ground. And make sure that we were effective in keeping our people, candidates and clients safe. And as I speak to you now, still 95% of our staff are working remotely. And we've created a whole series of capabilities and access to information around well-being so we can keep our people safe, not just physically, but also work on mental health and keep them engaged and cultivating future talent and in the future, in terms of outreach to communities and making sure that talent of the future for STEM in short supply, we are helping support them. We want to make sure that we have economically viable business and a vibrant business and so focus our crisis team on making sure we're making the right decisions at the right time. Careful cost and cash management, of course, and making sure we're aligning our actions with a long term in mind, focused on achieving our long-term Capital Day -- Capital Markets Day ambitions. And then last but not least, to underpin all of that, ensuring that we have the right operations to support our business, come what may, making sure our people have the right tools and technology to support them, making sure we're engaging with our clients to understand their needs and adapting our services for the reality that we face ourselves. And as well as that we delivered a series of STEMSeries, Thought Leadership programs to engage with both candidates and clients to understand what was going on and create a platform for people to adapt to the situation. Additionally, and our purpose has been seen in action. And as the title says here, never has our purpose been more relevant about bringing skilled people together to build the future and help play our small part in solving the immediate crisis in front of us. We worked with BioNTech, subsidiary of Thermo Fisher, and with many and teaching colleges, but teachers college, Columbia University and in the U.S. to help support them with their needs, so they can do their work effectively. Because of the core of what they do, the single most valuable asset they have is people and talent, and that talent is what's going to get us through this. And so we're very proud of the work that we do. We have a really valuable service that we deliver. And the exceptional talent, our candidates that we can place in the right opportunities, really make an impact in the world. And no time has it ever been more true than now. And so with that, I'll pass on to Alex, who will take us through the numbers. Alex, over to you.

Thank you very much, Mark. Good morning all, and thank you, Mark, again, for your kind words. It's been a real privilege to serve the group for 12 years plus. And I know I'll be leaving it in a strong position, both financially and strategically. And actually, I've got every confidence as we look forward, the group will deliver its 2024 ambitions as set out in the Capital Markets Day. Okay. So this slide looks at our performance for the year. And before I launch in, this is looking at continuing operations, so this excludes the discontinued segment of Australia, which we closed in the final quarter of the year. And I'll talk to the like-for-like movements, that's constant currency FX rates. So revenue for the year, just over GBP 1.2 billion, down 9% year-on-year. Net fees of GBP 308.6 million, down 8%, with a relative resilience from our Contract business. Contract down 7%, Permanent down 13%, giving an operating profit of GBP 31.3 million, down 48%. And an operating profit conversion ratio, that's the ratio of operating profit to net fees of 10.1%. A profit before tax of GBP 30.1 million, and taxation, the tax rate, the yearly effective tax rate on continuing operations was high 39%, and that was principally as a result of unrecognized unrelieved losses in the year, which we haven't taken credit for. Thinking about the effective tax rate going forward and thinking about the growing share of our business in terms of the U.S. and Germany, an effective tax rate more in the mid-30s feel sensible, certainly for the next couple of years. After-tax profit. After tax of GBP 18.4 million, down 57%. Now this slide bridges our operating profit 2019 to operating profit 2020. And just talking through this, you can see the reduction in net fees, both Perm and Contract coming through. You can see the saving in people costs, and that's a function of reducing headcounts throughout the year. So salary savings, commission savings, bonus savings and on cost savings. You see an increase in IT and other operational costs. This is primarily IT and just thinking through some of the drivers there, an element of the deployment of laptops earlier in the pandemic has been expensed during the year. We have replatformed our on-premise SAP platform to the cloud during the year. And with a number of enterprise agreements also with software providers, which has slightly increased the cost base as we're scaling the business and building the right platforms for the future. We've also called out here a number of one-off items, a net GBP 3 million. The principal one-off costs within the underlying is the rightsizing costs in respect of the headcount reductions during the year in light of the reduced aggregate demand. Impairments of a number of intangible assets, offset by non-U.K. government assistance. In the U.K., you may recall, we repaid our furlough money, but this represents assistance from other governments around the world. So the bridge there to the GBP 31.3 million, the continuing operating profit for 2020. So this slide really talks a little bit more about our improving underlying sequential performance. We were talking about this Q3. We were talking about this, of course, in our unscheduled full year upgrade -- trading update on the 23rd of November. And again, as our full year trading update in mid-December. The chart on the left-hand side looks at productivity to total head and you can see by quarter how that troughed in Q2 as the pandemic really impacted us significantly, but you can see that productivity improved in Q3 and Q4, giving a second half productivity increase of 4%. Looking on the right-hand side, you can see how that translates to net fees. And again, the dark black line is the group. So we were down 14% for Q3 but you can see how we've improved significantly in terms of that trajectory for Q4, down 7%, with really strong standout performances particularly calling out the U.S., a double-digit growth in net fees in Q4 and the DACH region that was only down 2% in Q4 compared to down 9% in Q3. So good sequential performance improvement in the second half and which we're continuing to see kind of thematically into the first 1.5 period or so of the new financial year. So this slide looks at -- in a bit more detail at flexible working and how that shifted over time, really building on some of the comments Mark made upfront. So first of all, 2015 on the left-hand side, for 2020 on the right-hand side, you can see the proportion of net fees, for contracts improving or increasing from 64% to 76%. So continued remix of the business towards Contract. Contract lifetime value, 40% higher than the Permanent equivalent. Many of you will know this and will recognize this number. But I think it's worth just highlighting that over of the average life of a contract is 43, 44 weeks, we typically have 40% more net fees over that period of time than the Perm equivalent. Then, of course, [indiscernible] touched on, there's a strong complementarity between to being STEM-focused and flexible labor. And there are ways that candidates like to build up that kind of that career through a number of gigs with a number of projects. But also, what we like about this is the predictability and the relative visibility we have, the barriers to entry around compliance and know-how, the kind of systems to be able to do this, and indeed, the kind of working capital prefunding or good barriers to entry. The relative resilience of this model, too, again, as we've seen in our execution in 2020. And the strong countercyclical cash dynamics and again, which we'll see when I talk through the cash flow in a moment. So really strong performances. And I think the other one to really call out here is the different flavors of flexible working. So historically, freelancer contract -- freelance contract model, the growing proportion of our net fees coming from employed contractors, and you can see there, which is kind of the burnt orange segment growing from 7% in '15 through to 28% in 2020. And actually, remarkably, that part of our business, Employed Contractor, grew year-on-year despite the pandemic by 11%, and is a higher-margin business. So it's roughly 40% higher than our freelance equivalent. So it's a nice profitable stream of business for us growing well. So moving on to the balance sheet. The balance sheet, robust, really highlighting -- I'd like to highlight 2 things: the strong net cash position and how that's improved. Net cash of just under GBP 50 million, undrawn and committed facilities from Citi and HSBC through to May 2023 and also participating in the Bank of England CCFF, which currently is scheduled to finish in March 2021. The other piece I'd call out here again is the working capital. We've got roughly GBP 80 million worth of working capital in the balance sheet, think of that as deferred cash. The vast majority of which you can see analyzed on the right-hand side, tied up on our Contract business, so GBP 76 million of that tied up in our contract book. So strong balance sheet and sets us up well as we look forward. And so then thinking about cash, we've had, and I've talked previously about the focus on cash and cash management and some of our achievements in relation to this in 2020. So we benefited from that, but also from the model, the business model, this countercyclical cash hedge. So let me try and bring that to life, talking through this chart. So starting with the operating profit on the left-hand side, adding back noncash items, which are now larger due to IFRS 16 and lease accounting. Tax deferrals, we've pulled out here, so just to be really clear, there's just over GBP 9 million worth of sales tax deferral. So we pulled that out of working capital, half of which or GBP 5 million of which are now due to be paid in 2021. So that's like a bit of a one off benefit. And then the unwinding of the contract of book and working capital, stripping out that tax deferral of another GBP 17 million, giving us an operating cash flow of GBP 76.9 million or operating cash conversion ratio of 260%. So very strong. Looking forward through to the free cash flow, we pay, of course, our corporate taxes and our lease rental payments primarily getting to a free cash flow of GBP 52 million or 178% conversion of operating profit to free cash. And how we use that cash? Well, we've funded the investment in the business, GBP 5 million of CapEx. We bought back shares to satisfy LTIPs and tracker share arrangements. We paid our interim 2019 dividend that came through at the very start of the financial year, and the balance is the increase in cash that we saw on the balance sheet from roughly GBP 10 million to just under GBP 50 million. And so looking at this slide and just thinking through earnings per share and then talking to the dividend. Our profit after tax, I mentioned before, GBP 18.4 million. And then looking at the basic one-off and the dilutive impact of share plans to get fully diluted one-off, we drive a basic EPS of 13.9p or diluted EPS of 10.5p. I'm delighted that we reinstated the dividend, So the final dividend of 5p, this was based upon thinking around the sequential improvement we saw in Q3, Q4, our strong cash position, our exit right into the new financial year. And of course, our fundamental confidence in the business and the model looking forward. So moving on to business overview. This slide really gives you a kind of a view overall of the business. And as Mark mentioned, it's really pleasing that we took share in 4 out of 5 core geographies, the U.S., Germany, Netherlands and the U.K.. And you can see looking at the pie chart on the right, how the DACH region and the U.S. region are taking, if you like, mixed share with EMEA, excluding DACH, giving up some. So in terms of this sort of presentation, this is the third time now that we've talked through these sorts of KPIs. And I'm just going to pull out a number of kind of key points. Average headcount for the group, down 8% for the year, in line actually with our net fees, down 8%, really strong performance of NPS, which Mark talked to. I think the contractor order book is an important one, so down 10% year-on-year. That compares to down 14% and at the end of Q3. So when we talk about sequential stabilization, that's what we mean. And I think if you look at the sector analysis on the right-hand side, there you can really see very clearly the Life Sciences share of net fees increasing. So you can see going from 20% last year to 23% in 2020. And if you like, Banking & Finance giving up in the other direction. So just moving on to our core management region. So the DACH region, 34% of group net fees; net fleet, down 3%; average heads, up 1%. In terms of Permanent, Contract, this is a more permanent weighted region for us. So we have a very strong Perm and Contract business in Germany. And again, you can see there in terms of the sector mixes, that Life Sciences and Tech have both increased in terms of mix during 2020. In terms of the contractor order book, great to see in Germany that the -- or in the DACH region that the contractor order book up year-on-year, up 5% versus the group down 10% and we've got a 3-year CAGR growth in that as 13%. In terms of the performances, look at that, so Contract and Perm were both down 3% in line with the region. So very resilient and creditable performance there within Perm, strong performance in Life Sciences, strong performances in Tech, calling out some of the skills that we've been placing. And really exciting that we're now the third largest IT contract recruiter in Germany. So now moving to EMEA, excluding DACH. So more challenging in this region, net fees down 16%, average heads down 16%. Again, a strong performance, as we saw also in the DACH region in terms of Net Promoter scores. This region is much more contract orientated. And if you look at the mix by sector, we saw engineering, and this is a particular strength of our DACH business and engineering, increasing its relative mix and also Life Sciences and on the opposite side, Banking & Finance. In terms of the contractor order book, more challenging in this region, down 26%. And you can see in the central kind of donut chart, the relative mix of the geographies. So Netherlands is the biggest here, 40%; U.K. at 30%; and then you've got Belgium, France, Luxembourg, Spain and Dubai. So look, in terms of net fees, Contract more resilient again, down 15%, but Perm down 26%. U.K., more challenging. But again, really pleased that we were able to take share in the Netherlands and in the U.K. despite the challenging trading environment. The U.S. So the U.S. represents 25% of our group net fees, saw a 2% growth in net fees year-on-year, 1% reduction in average head, a strong NPS increase. And it's a primarily Contract business, slightly more contract-orientated than the group average. In terms of the sectors, big Life Sciences business in the U.S. It's our biggest sector, and it performed extremely strongly. You can see that it's grown in terms of mix by 6 percentage points to 47% and Tech has also increased its share by a point and again, Banking & Finance being the loser. So in terms of the contractor order book, growth year-on-year, up 1%. And again, some -- a bit more detail in terms of the Life Sciences and Tech skills, in particular, that we've been seeing strength in. And then finally, APAC. So this is all, again, on a continuing basis. So this excludes Australia. So essentially, we're talking here about Japan and Singapore. And it is worth noting that this is only 3% of group net fees, and as you can see, is a permanent weighted business, 80% Permanent. You can see on the right-hand side in terms of skills and sectors that Technology is a big gainer year-on-year. And looking to the contractor order book, again, it's very small. It's a small part of what we do. This is 3/4 Japan and 1/4 Singapore. And I suppose it's worth noting that within this region, the transactional nature of our Japan business, which is 94% Permanent, has had more of an impact than the group average. But on that, I'd like to hand back to Mark, who will talk us through strategy and outlook. Mark?

Thank you, Alex. And so I wanted to spend a little bit of time talking about strategy and outlook before we get to questions. But before we get strategy and outlook, sometimes when we're going through the numbers and we talk about the change, we forget that at the core of what SThree is, it really is a people business. So thought it would be good for us to hear from one of those candidates who is here with us in place. And so Tim, could you play the video, please.

Hi. My name is [indiscernible]. I'm leave nearby Amsterdam in a town called Almere. I'm an enthusiastic person and like to work in teams. So you can export your enthusiasm and your energy to work together. At this moment, I'm working for 5 months for a progressive recruitment group. And they are also part of the SThree group and I'm working for 5 months now at a big company for -- in control statement. Together with the risk and security department and the IT colleagues, we are busy with evidencing processes and procedures. Together with Progressive, I'm positive about my future and also the jobs I can do in the future. For me, Progressive has good consultants who helped me everywhere I need them.

Thank you. And that was an integrated control systems engineer from the Netherlands, as you could gather from the accent and a critical role in making sure that the key systems are engaged with technology, as you heard them there, working through new technology, software and security as software embeds itself in all elements of our working life. So those are the people that -- the types of people that we placed. I just wanted to give you a little bit of an update on progress against our strategic pillars. And if you recall, there are 4 of those pillars. The first one is leveraging our position at the sensitive STEM to deliver sustainable value to our candidates and customers. And despite the pandemic, we -- and probably because of the pandemic, we took our position as the domain experts in understanding what's going on in those domains within Life Sciences, Technology and Engineering, to create and deliver 75 virtual events that were well attended by experts and thought leaders around the world, talking about topics such as remote working, different types of talent and how do you engage them, how do you operate a business in a remote environment. And so very well received and we're seen as a leader there. And we performed a strategic portfolio review to make sure we're focused on the best end markets where we can be successful. And as Alex noticed in the financial results as we announced earlier on in 2020, we exited Australia this year. And we've also made sure that we've focused on our brand purpose and aligning it to our core value. So you're hearing around SThree and what we do, purpose is very central to us in how we operate our business because we are a people business in terms of engaging with the market, our candidate heroes and with our clients. And if anything, 2020 has taught us, we all need to be a little more human and engaged with our fellow mankind to move things forward. The second pillar was creating a world-class operational platform through data technology and infrastructure. And through the pandemic, we appointed a Chief Operations Officer, Kelly Olsen joined just at the start of the pandemic. And so onboarding, we, just like everyone else, were able to onboard senior talent that's had a big impact in a remote environment. We've also delivered software and hardware to all of our people around the globe to make sure that they could operate successfully. And as Alex mentioned, we're also in the midst of all of that did in SAP [indiscernible] migration, our core ERP system that was on budget and on time. And last thing was about to be -- sorry. Second from last to be a leader in the markets we choose to serve. Our DACH business is recognized as the third largest IT contract recruiter by an independent market analyst company in Germany, which is a really impressive performance and the continued growth and strength of our German business being reflected in the numbers there. We continue to improve our customer Net Promoter Scores. As I mentioned earlier, increased 8 points to 52 and continued our thought leadership through many events locally around thought leadership to be the domain expert. And last but certainly not least, it's about how do we find, develop and retain great people. And engaging with our people, creating platforms and solutions and resources to help them get through what has been quite an extraordinary year, we've made sure we've engaged with them and taken many surveys to understand where they are. We've created a whole library of digital resources. So that 5,900 hours of learning could happen. We've launched our THRIVE platform and a commitment towards whole health and well-being that we launched early on in May and continue to develop and focus and we launched an important D&I strategy with reengagement on an inclusive environment for working at SThree and we've improved our performance in gender equality as 1 element of that with female management. So we're making progress across all of our strategic pillars and taking advantage of the opportunity to do so in 2020 regardless of the conditions. That's too far. And as I think about being a purpose-driven organization, central to that is ESG. So focusing on the environment and focusing on our societal goals and our governance and making sure that we're operating the business effectively. We set out at our Capital Market Day, ambitions and pretty ambitious carbon reduction targets. And in 2020, we certainly made a big progress across that target with a 56% reduction in our carbon footprint. Important to us as a people business is thinking about people and building an inclusive workforce for the future. That includes our diversity and inclusion strategy and making sure we're engaging with all people so that we can get the best talent regardless of who they are and what they look like or sound like or how they work. But it's also about how we positively impact the lives of people throughout our time together at SThree. And so we impacted over 15,000 lives, whether it's through our recruitment activities or with our outreach programs to engage with the community more readily with our people of volunteers to use their skills and knowledge and provide their support to people at risk of unemployment on indeed, our new partnership with UrbanEd in the U.S., we were engaging with underserved communities and matching them with candidate and mentors to help them start their STEM career journey. And then lastly is to make sure that we're building on our business ethics to continue to focus in line with our purpose and facilitate partnerships with stakeholders and ensure that we are holding ourselves to the highest standards. One of those elements at outreach was to engage with our clients deeply. And we started this year with our sentiment survey in understanding what's going on in our clients. And it's clear from the themes that are gaining traction that the pandemic has accelerated many of the trends that we saw and that form part of our strategy. There's certainly a focus on how companies can look forward and manage a more flexible and resilient workforce of the future as a broad theme where we can play an active part in supporting our clients. There's also a notion of rebuilding global supply chains with a focus on resilience and sustainability, so moving from just-in-time to just-in-case as companies reassess after global pandemic, quarantines and border shutdowns and travel restrictions have impacted the way that they engage globally with their clients and suppliers. And then last but not least, the important transformation of -- digital transformation impacting all aspects of our lives and the need for specialist roles in automation, cybersecurity and infrastructure as well as people engaging with all stakeholders through new e-channels. And how that's manifesting itself in the marketplace as our clients and companies in the markets we serve begin to adapt and adjust to the current reality, businesses investing to ensure the resilience post-pandemic. And so 40% of employers in our most recent survey expect that employees will require a digital reskilling and 48% are investing in technology and 34% are investing in new talent. Agility, organizational agility is key. People are at the forefront of that in understanding how they manage our remote workforce. 45% of our clients specifically stated that they demand more adaptable employees and 37% of them are taking a leaf out of Technology's rule book in adopting agile methodologies, not just in software development, but many aspects of delivering programs and projects. And last but not least, the demand for the right STEM talent still exceeds supply. We operate in supply-constrained markets and the value that we add to both candidate and client is making sure we match the right candidate with the right opportunity. 56% of infrastructure network in cloud, and our demand is for infrastructure network in cloud and 59% in cybersecurity, 44% in mobile applications. Those are the areas that our clients are really struggling to find and are really focused on using companies like SThree to help them in that survey. And so as I look forward for the business in SThree, we're going to continue to drive towards our 2024 ambitions. It's clear that the secular trends of STEM and flexible working have been accelerated as a result of the current conditions and we're in a great place to capitalize them and building on our 2020 success in our focus on execution across the business, making sure that we are best able to capitalize on those opportunities. And in line with those strategic pillars, we'll continue to invest in our people, in data, technology and our go-to-market approach and making sure that we can leverage the power of our unique position as our platform. As I think about 2020 and how it lines up with our group ambitions, it's pleasing to see despite aggregate demand being compressed dramatically as a result of a once-in-a-century event, we've taken market share. Our free cash flow is up. We've worked hard on making sure that we can deliver profit not quite where we'd like to, but we're certainly on track, and we continue our progress. And we've made improvements in investing in our people for the future and reducing our carbon profit. And so we're pleased about the performance, a resilient performance. We took market share in the year and so we'd be delighted now to take your questions. So Tamsin, tell everyone how we can do that.

[Operator Instructions] And we've got a question from Sanjay Vidyarthi from Liberum. I'm going to go on to Steve Woolf from Numis, and we'll come back to you, Sanjay.

Can you hear me guys?

We can.

Yes, we can.

We can.

Just -- first of all, I just wanted to say thank you, Alex, for all of his help during the many years he's held hands, et cetera throughout these markets. Question-wise, just a couple on my side. As the market now seems to have turned a bit, you guys are seeing greater momentum certainly out from the bottom of the cycle we hope at this point. Just your thoughts on investment this year, the priorities, whether it's headcount and then more broadly than that, where do you see the greatest opportunities for investment over the next 12, 18 months?

So thanks, Steve. Thanks for the question. And I think as you think about 2021, we've laid out that we will be investing in people, but we'll do it as we -- quite frankly, as we did at the -- in 2019 and in 2020, is be thoughtful about where we're going to invest that. And it's in our core markets that we talked about before. So there's 5 core markets is where we see opportunity, and that -- it will take the priority, but we'll do it judiciously relative to where the market is coming back. So likely to be in those core markets. And we'll help them match it with demand moving forward. So we still got a pretty focused view on month-to-month where we're actually looking at the business. And Alex, talking about holding hands and helping us getting you right and his team really help us think through the metrics of which markets or which way do we want to invest in moving forward. And then on the other areas for investment are likely to be, as I said, data and technology. We got -- just as I said, that trend on everyone's focusing on digitization. We're no different in making sure we've got the right tools and capabilities to move forward. And that helps with the productivity of the group. So I would expect in summary, the big 5 markets: U.S., U.K., Netherlands, Germany and Japan is likely where you're going to see that coming.

And we'll now go to Andy Grobler from Crédit Suisse.

And also, Alex, thank you very much, and good luck with whatever the future brings. Just 3 for me, if I may, and a little bit short term, I apologize. But could you just talk us through kind of return to work metrics at the beginning of calendar '21 in your main end regions? That was the first question. Second, the contract margin was up 40 basis points last fiscal year. Could you just talk through again what was the driver of that? Is it mix? Or is it like-for-like improvements? And thirdly, you talked during the presentation about the difference in margins between ECM and freelance and so forth. Could you kind of split out the profit mix between freelance, ECM and the perm either last year? Or kind of on a more normalized basis if that's available?

Thanks, Andy. I'll have go to the first one. If I understood your first point is, are clients returning to work or us returning to work. I'm not sure which element of the mix as you're looking for then…

It's really trading in early January and client demand for contractors at the beginning of the calendar year. So how are the trends versus kind of a normal year? What impact has lockdowns had and so forth?

Got it. Well, so I think what we've seen, certainly, we -- as I laid out, we have the view that we're going to be in this for a bit of time. So we better get good at operating in this environment, this virtual environment. And we've certainly focused a lot of our effort on doing that. And I think through 2020, you saw a sequential improvement in our ability to do that. I think we've also got our clients largely doing the same thing as they realize they have to operate in this environment as well. So I think the sequential improvements you're seeing is people adapting rather than a specific relation to lockdown or not lockdown, people going in the office versus working from home. Obviously, there are economic impacts as you're compressing things. But the demand for our talent is certainly in place and regardless of the environment, and we're continuing to see broadly the same trends happen despite -- if you think of in our Q4, you had pretty severe lockdown in many parts of Continental Europe in the late autumn, early winter. And so I think that's what we would anticipate going forward. But I think 2021 is going to be, as you highlight, just as volatile as '20 certainly in the very short term. You can go ahead.

Sorry, just building on that, I was just going to say that the -- what we've seen December, January. So December is obviously our first period of our financial year, so obviously not the kind of calendar going back to working. But we've seen good progress in terms of new deal activity and those trends continuing, good progress in terms of productivity and good progress in terms of retention rates. So December is a critical end of the calendar year, is a significant period of contracts finishing and our retention rate in December was 85% compared to 84% the year before. So we're continuing to drive that activity, continuing to drive that productivity and the retention, certainly for the kind of both for the year-end, calendar year-end, very positive. And as we think about what we're seeing in January, again, it's continuing positive trends so far.

So I think, Andy, just to put a fine point on the -- on your first question, I think the reality is the macro trend and the demand for the talent is [indiscernible] the compression in the macro environment as a result of lockdown as people just say used to operate in that way. Then, Alex, you want to talk about the…

Yes. I will. Yes, so in terms of the contract margin, yes, Andy, thank you. Yes, so the contract margin has increased. As I talked about, the employee contractor mix has grown. So we actually saw an 11% year-on-year growth in that part of our business, which is more profitable and has a higher-margin than the traditional freelance. So there's a lot of moving parts. But as I look at it on a geographical view, all our core regions have seen -- have either been level or have seen some increase. So it's pretty across the board, I would say, and that's by region. One sector, one vertical where we've seen a slight reduction is Banking & Finance. But look, it's pretty much across the board. And in terms of your third question, this is the final killer question before the profit mix perm, contract. So we don't and haven't disclosed this in the past. I think I'll just point you to the lifetime value to say really that, again -- and what we quoted today was the 40% based upon Q4 data. But when you look at the net fees over time, typically 43, 44 weeks for contracts finishing in that final quarter, compare them to the perm equivalent and new deals in that period, 40% higher. So it's significantly more profitable contract than perm.

And we have the question from Sanjay Vidyarthi from Liberum who has a question on the use of data, as you've done in Germany. Can you talk about the progress with rolling this out to other markets?

So we've rolled it out in the U.K., and we're beginning to roll it out in other markets. So we are making progress in moving out, but I expect that to accelerate in -- through the end of this quarter, our Q1 and into Q2 this year. So we're pretty excited about the opportunity there.

And we've got one more question. [Operator Instructions] And we've got a question from Adrian Kearsey from Panmure Gordon who says productivity increased by plus 12% in quarter 4 as you invest in the consultants and the platform. How far do you think productivity gains can go?

Thanks, Adrian. I don't think we have a specific number in place. I think what we're trying to do is make sure we maintain that level of productivity that we've got as we bring new people on. I think that would be a really good outcome rather than trying to push it even more.

Great. That's the end of questions. Mark, do you have any closing remarks?

Thank you, Tamsin, and thank you all. A very unusual year 2020 will be an understatement. And I don't want to use any of the cliches of unprecedented or once-in-a-century again. I think we've probably done enough of that. But I think what is certainly highlighted is the resilience and agility of SThree as a business and the people that we have, and I'd like to thank all of the team at SThree for showing remarkable resilience, agility and flexibility and hard work to deliver the results that we are pleased to present today. It was a team effort, and they had to work in pretty extraordinary conditions through this year and continue to do so. So their commitment has been terrific. Our purpose, our strategy is absolutely right and not how you'd want it to be battle-tested. But clearly, through 2020, it's showing that we're absolutely in the right secular trends and how our strategy is right, and we're making progress against it, and I look forward to the future. And just lastly, again, and talking about commitment and hard work, just like to thank Alex again for all of this and commitment and hard work as we go off into 2021, but I'm sure you'll be hearing from him again soon. So you're not going anywhere just yet. So -- and thanks, everyone. And we'll see you all again on the 15th of March for our Q1 trading statement. Thanks, everyone.

Many thanks, Mark. Many thanks, Alex, and thank you all for joining. This is the end of the webinar.