SThree plc (STEM) Earnings Call Transcript & Summary

Thanks, Nick. Hello, I'm Matt McManus, and I've been with SThree for 26 years, during which I've operated across many regions, including being MD of APAC and EVP of Commercial Operations in our U.S. business before returning to the U.K. I'm leading the sales effectiveness program, which will enable our people to do their very best. We attract bright, enthusiastic people to join us and embark on a sales journey, which to many is totally new. We provide really good training to teach and guide them through the sales process. For our top performers, this is intuitive, second nature, but typically, this is a long learn curve for our new sales consultants, which means it takes time to become productive. In addition, from one consultant to the next, there is currently a huge amount of variability and subjectivity applied to the same situation and actions. Through our sales effectiveness program, we're removing this randomness and variability, replacing it with consistent, repeatable, and scalable processes by systematizing and enshrining our inherent knowledge gained from our decades of experience, we're taking the art of recruitment and making it more of a science. So as you've heard from Nick, last we launched our pilot in Houston to test our new CRM processes and capabilities. Let me tell you a little bit about this pilot and how it went. We created a dedicated team mobilized from the program with the expertise to support the pilot and deliver a program at this scale. We focused on our core sales processes and the development of a minimum viable product. This MVP comprised of out-of-the-box mercury core functionality with some standard third-party integrations, such as LinkedIn, Outlook and Teams, upon which we then released the short list of customized enablers. This targeted scope allowed us to learn how we features of our new CRM can drive sales benefits realization. And it also allowed us to learn, improve and develop muscle memory required for a global transformation program at this scale and to deliver at pace. It also ensured that the business was not overwhelmed and was able to consume the volume of change without disruption. Our pilot was deployed in August 2022 on time, within scope and in budget. So what do we learn through a test fail, test fail, test approach, we created a real-time feedback loop enabling us to enhance the solution for the user. The on-site support provided by the project and CRM implementation teams was widely recognized as the importance of embedding ways of working into the training. As consultants proficiency grew, additional functionality was added, which is well received. The pilot has created a test bed for future developments and enhancements and informed future deployments, including the optimal virtual versus in-person support time line and proximity to the office given the high ways of working. The key outcomes from the pilot include systematized and structured ways of working through the digital Blueprint, which became truly embedded and have informed future development. We were really pleased with the high levels of engagement. Our eNPS score improved by 13 percentage points over the quarter despite people being back in the office 4 days a week. As with any change program, we expect to see a reduction in performance during that time, especially as the CRM and back office are not yet linked requiring some processes be replicated. However, we were pleased that the shape of this J-curve of performance was both narrower and shorter than expected. And after 4 weeks, everyone was able to use the system proficiently and collectively, they achieved their best month of the year. The pilot demonstrated the program's capability to enable our people to achieve their best, quicker and more consistently. The completion of this pilot is enabling us to build at pace ready for global deployment. So let's hear from a couple of our consultants who took part in the pilot. [Presentation]

With data at the heart of our decision-making, we'll transform our organization from a reporting culture into an insights culture, one which will provide meaningful signals and actual insights at scale in depth not previously possible. Our new CRM will understand and know where every sales consultant is with every opportunity, sales lead and candidate. This unique business intelligence brings multi-decade best practice to our predictabilities driving them through every next step. Through automation, our consultants will be able to track progress in real time, see target-driven KPIs visualized in a simple way, enabling them to focus on the key events and activities to close deals sooner and drive sales. For our sales managers, dashboards will provide them with real-time insights, enabling them to better support their consultants, offer early intervention if actions haven't been followed, identify opportunities for improvement and close performance gaps through tailored training and coaching. This virtuous circle will enable us to replicate the best of SThree, enabling our consultants to become productive quicker and more consistent, earning commission earlier in their journey with us, which, together with the removal of manual interventions from their daily activities, drive job satisfaction and improved consultant retention. Our enhanced digital experience drives a better customer experience, which in turn creates greater stickiness with both candidates and clients, driving renewals and repeatable business and so on. At our senior leaders level, data will drive greater visibility and insights, facilitating improved collaboration between teams, regions and brands and underpins our analytical approach of knowing where to play and playing where we can win, driving better allocation of resources and better returns. You've heard a number of times today about our enablers, our customized feature functionality. Let's look at one of our business processes, follow the finisher and see how the system can guide our consultants through this process in a methodical and repeatable way. Our new CRM system enables us to enshrine this process in an intelligent platform, bringing every process to life in real time. With a high degree of automation, it nudges and prompts the sales consultant through every step of the process in an enhanced and replicable way. Each step is supported by a number of tailored enablers, such as Nick mentioned, including adaptive core scripts, AI-driven best next actions and intelligent matching. This simple example demonstrates the standardized approach to each process, reducing randomness, increasing automation and supporting our consultants' likelihood of success, whilst enhancing our customers' experience. This approach underpins our compliance service offering, which as you've heard, is valuable and is a growing client expectation. Let's take a look at how our new CRM will bring these processes to life for our consultants. [Presentation]

So today, we've heard from Stefan and Kristen, our Houston-based consultants and seen a glimpse into our new digital candidate onboarding experience. So let's hear from Sunny who heads up our U.S. business.

Hi, everyone. I'm Sunny Ackerman, and I'm thrilled about our sales transformation and new CRM system and what it means for our business operations. Over the 3-month pilot we conducted with our Houston sales team, we successfully executed with the agreed-upon time frame and budget. And during that time, we've learned that our new CRM is highly intuitive and we'll fix many of our manual processes. Overall, the new system gives our teams the ability to have an even stronger handle on our sales pipeline. And from back-office functionality to reporting capabilities, to streamlining our onboarding, and really everything in between, our digital transformation of our new system will enhance our overall business processes. And the ability to integrate and collaborate across the business areas, including our sales enablement, learning development, marketing and sales operations teams. The byproduct will be better client relationships, a better quality of leads and a better brand reputation, which will translate into increased revenue and reduced operating costs. And ultimately, we have the right tool and strategy to take us on our journey of growth and solidify ourselves as a solution. And with that, I will pass you to Andy, who will cover the program financials.

Now that we've heard from the project team, let me take you through some of the numbers. The chart on the left-hand side shows the annual split of the GBP 30 million to GBP 35 million 3-year program costs split by OpEx and CapEx. As announced, the program's OpEx cost in FY '22 were GBP 4 million weighted to the second half. In FY '23, we expect to incur program costs of around GBP 15 million to GBP 17 million, of which an estimated GBP 6 million to GBP 7 million will be expensed with the remainder of the program costs anticipated to be incurred in FY '24, in line with the planned rollout of which GBP 5 million to GBP 6 million will be expensed. On the right-hand side, you can see the impact of these costs on the group's operating profit conversion ratio. In FY '22, the group has delivered exceptional levels of productivity, and we've seen a bounce back in margins following COVID. Our FY '22 conversion ratio of 18% reflects the program costs of GBP 4 million to date, all of which were expensed. Were it not for these investments, our margins would have been 1 percentage point higher. With the annualized impact of these program costs in FY '23, we expect flatter margins as represented here by the pink line, which would be around 1.5 percentage points higher were it not for these program costs. In FY '24, we expect to incur the remainder of the program costs. And due to the timing and phased nature of the rollout, we will continue to dual-run some systems. Initially, we see an inflection point as we expect to start to see the initial financial benefits of the program, which supports our ambition of delivering an operating profit conversion ratio of 21% or higher in FY '24. To put things into context, at today's net fee levels, the 3 percentage points increase we are looking for represents around GBP 12 million of additional operating profit. We are confident that we can achieve this level of improvement by enabling 0 to 24-month cohort to become productive quicker. Whilst there are many other benefits, not least the expected improvement in consultant retention that you've already heard about today, this one metric alone gives us the comfort that the program payback is achievable. Based on our planned investment, we expect to deliver a positive ROI by FY '25. And with that, I'll hand back to Timo.

Thank you, Andy. Today, you have heard how our technology improvement program will enable us to deliver scalable, sustainable growth and supports our FY '24 growth ambitions, namely, growing market share, delivering a long-term sustainable conversion ratio of 21% or more and being an employer of choice. Our technology improvement program will enable and excite our people to perform at their best. Based on systemizing our Blueprint, our deep industry experience and through state-of-the-art technology, we will fundamentally redesign recruitment processes. This approach supports our strategic pillars by enabling data-driven decision-making, which informs resource allocation and underpins our analytical approach of knowing where to play and playing where we can win. Delivering better connected, innovative technologies and processes to drive greater operational excellence, productivity and customer experience, attracting the best talent, providing the best training and targeting people to the best markets, driving effectiveness, engagement and expertise, and driving our reputation as the undeniable first choice for STEM talent. Our opportunity is large, underpinned by structural megatrends and the requirement for scarce STEM talent across industries and regions is acute. Our first investor briefing covered this and how we will go about seizing it. We have the right team, energized around a clear strategy to build the future, one which we can scale in a way not previously possible. By giving our consultants the best to its possible and our customers a world-class digital experience, we will execute on our vision to be the #1 STEM talent provider in the best STEM markets. It is clear to me that the group has a huge opportunity to build on its successful foundations and to create a truly differentiated proposition within the market. The work we have done over the year is aligned to building a business with long-term sustainable growth potential in line with our 2024 ambitions and beyond. I am so excited about our future. It is time to unleash the power of SThree. Thank you, everyone. This was our second investor briefing. Remember, last time we talked about seizing the market opportunity and the discipline and focus, which we really brought into the organization. Today, we talked about the technology improvement program. And I know everyone was really keen to hear more about it. I hope with Nick, thanks Nick. And obviously, thank you also to all of their team members and our transformation team internally, really delivering not only the project so far because I think we had a very busy and successful last year. But I can really reiterate, the organization is in an absolutely maximum heartbeat enrollment, super-energized and super-positive looking forward towards our 2024 ambitions. But please remember, this is for a much more sustainable long-term growth, which we are trying to achieve here. And with that, I believe, and hopefully, we could convince you today as well, our project scope is absolutely clear. The project execution together with the project team we have made around is really state-of-the-art. We have a lot of really, really experienced people on this team doing nothing else than helping us to provide this IT investment program. And yes, with that, again, thank you. And we will definitely come back with another investor briefing in a couple of months, but you will hear more about it very soon from us. Until then, have a great week and looking forward to catching up again.