SThree plc (STEM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to SThree's Q2 trading update, and thank you for joining us. I'm here with our CFO, Andy Beach, who will take us through the numbers in a moment. In particular, the importance of science, technology and engineering talent, which is at the heart of what we do, sees the continuous increasing demand within the global economy. This also came clearly through when in May world leaders [ Matt Endeavors ] at the World Economic Forum, discussing at length the challenges of climate change, food production and reliable energy supply. The topic of the increased challenge around the future of work and in particular around the increased pressure of labor shortage was another key theme of the event. Topics like gender inequality, what the future of work looks like, and how we must adapt to an increasingly digital future have supported the overall discussion. These topics are the global agenda and each and everyone will ultimately require the efforts of people with STEM skills in order to effect change. This is our area of expertise, and we are proud to be working with our clients, delivering the central skills they need by placing STEM experts into new roles every day. The consistent strong demand from our contractors for STEM rolls means we have seen great momentum continue into Q2. Net fees in Q2 were 23% up year-on-year. And as mentioned in today's announcement, this is in particular pleasing given this is the first time a like-for-like non-COVID impacted comparison we have been able to report for some time. Given the strong performance, we now expect that profit before tax for the 12 months to the 30 November 2022 will be at least 5% ahead of current market consensus. This growth reflects a good performance across all key regions and STEM disciplines. The uptick in permanent net fees was robust at 11%, a positive movement against strong comparators. But given our strategic focus on contract, we were pleased to see this area growing at an even faster pace, up 30% year-on-year. We are pleased to have continued executing on many aspects of our growth strategy, including our previously signaled internal investments in our people, talent acquisition and digital infrastructure, which continued to progress in line with plan. With that, I will hand over to Andy, who will take us through the numbers for Q2 and where that brings us at the end of first half. Andy, over to you.

Thank you, Timo, and good morning, everyone. Q2 is in the great recent momentum continued with net fees up 23%, resulting in a growth of 25% for the half year. We went back from the pandemic really strongly in Q2 last year. So as Timo already mentioned, it's great to be able to report a truly like-for-like performance and one that is so strong. Pleasingly, this growth is robust across both contract and permanent and across all regions and all sectors. 73% of our net fees come from our top 3 countries with Germany, U.S.A. and the Netherlands, recording net fee increases of 22%, 21% and 41%, respectively. From a sector perspective, we retain a strong and unique position in providing STEM skills. Technology, our largest sector, grew by 30% year-on-year. It's worth noting that when we talk about technology, we're referring to placing people with skills in technology across multiple industries. Engineering and Life Sciences also grew by 27% and 16%, respectively. Turning now to each region in turn, starting with DACH. Germany represents nearly 90% of DACH, and growth here was driven primarily by technology, up 28% with high demand for data science, open source software development and leadership roles. And engineering, up 27% due to demand for construction management, together with automation roles. The growth across DACH was largely driven by contract placements and supported by government initiatives championing renewable and digital transformation. In EMEA, excluding DACH, the growth was driven by the Netherlands, in particular, by engineering and technology roles. Pleasingly, the U.K. continued to build momentum, delivering a third quarter of net fee growth in the high 20s, driven by technology as demand increased for roles within IT strategy, cloud and business intelligence. In the U.S., growth was strong in contract. The 3 main sectors delivered good growth with Life Sciences driven by clinical operations, quality assurance and product development roles; Engineering driven by project management roles within the utility sector for the modernization of energy grids together with decarbonization projects; and Technology with demand for mobile application and software development roles. And finally, in APAC, net fee grew a fantastic 47%, driven by technology as demand increased for technical sales and commercial roles. Average head count in the first half was up 10% year-on-year, with investment in talent acquisition remaining a priority for the group, primarily on the contract side of our business. Sequentially, period end headcount was up 4% versus the FY '21 year-end position, and we continue to target circa 10% growth by the year-end. Alongside this, we continue to see productivity well above historic levels based on record net fee growth with H1 productivity up 14% year-on-year. Whilst we expect productivity to remain above pre-pandemic levels, we do expect to see it reduce over time as group head count [ would grows] . We are seeing continued growth in the contract order book, up 35% year-on-year, which underpins our confidence moving into the second half. This strong contract performance led to an increased working capital requirement, meaning net cash at the end of the period was $48 million, $10 million lower than the year-end, but this still leaves us with a very strong balance sheet, providing the group with the firepower for continued growth. With that, I'd like to hand back to Timo.

Thank you, Andy. This strong performance was driven by the execution of our strategy, which continues to deliver demand for both contractors and permanent employees with new STEM skills remains very high across all our core markets, while supply is constrained. This macro trend underpins the success of our model and currently shows no sign of abating. While we remain highly mindful of current geopolitical and macroeconomic uncertainty, our established position as a trust expert talent partner leaves us ideally positioned to fulfill the strong demand for the critical STEM scales we are seeing from our clients. Our relentless STEM focus addressing structural market drivers together with the strength of our contractor order book gives us confidence, and we now expect that profit before tax for the 12 months to the 30 November 2022 will be at least 5% ahead of our current market consensus. Thank you all for being here. I think very strong results. And obviously, we're looking forward to the 25th of July for our half year results. Thank you very much. And all have a great week.