SThree : Q1 Trading Update (Transcript)

SThree Q1 2022 Trading Update Call

Timo Lehne: Good morning everyone, and welcome to SThree's first trading update of 2022. Thank you for joining us today. I'm here with our CFO, Andy Beach, who will take us through the numbers in detail shortly. Hi Andy.

Andrew Beach: Good morning everyone.

Timo Lehne: But before I go into our financial progress I want to acknowledge the crisis in Ukraine. We have extended our support, both as a group, and have championed individuals who wish to do so too. From an operating and financial perspective, our business has minimal exposure to Ukraine or Russia.

I would now like to turn our attention to our results. We have seen great momentum from the start of the year, off the back of our record performance in 2021. The headline figure, as we have seen in the RNS is that Group net fees are up 29% year-on-year, which we are very proud of, and Andy will give further detail on later. This performance reflects strong progress across markets and sectors in both permanent, contract and in our contract order book. As might be expected post-pandemic there is continued growth and emphasis on roles in Technology followed by Life Sciences and Engineering. We spoke at the year-end about our internal investment in our people, talent acquisition and infrastructure, to drive long-term sustainable growth. We are pleased to say that this is in line with the plan and will gather pace through 2022. A number of the stories that support our strategy and internal investment, are in our 2021 Annual Report. And I hope you will take some time to read these. Finally, our results continue to demonstrate that our strategy, positioned at the centre of the secular trends of STEM and flexible working, is exactly right. This has been long embedded in the business and makes us very unique. With that, I will hand over to Andy, who will take us through the numbers for the quarter. Andy.

Andrew Beach: Great, thank you Timo. As Timo has just said, it's fantastic to see the momentum in the business that's testament to the hard work of our teams, our positioning in STEM, and the delivery of our strategy. And as you've just heard from Timo, we've started the year with a strong first quarter, with Group net fees up 29% on a constant currency basis. Given our record performance in FY21 we have stopped providing comparisons to the pre-COVID period in our announcements. Having said that, let me take you through them just one last time. The comparative quarter, the three months to February 2021, was still impacted by the pandemic. But due to the resilience of our business it was only 1% down on the non-impacted period of Q1 FY20. So the growth we are reporting today represents a genuinely strong performance, not only a bounce-back. That means that we have delivered a 27% increase in net fees compared to the pre- pandemic first quarter of FY20. Pleasingly, this growth is strong across both contract and permanent. And our Employed Contractor Model, or ECM, continues to be an increasingly compelling proposition for both candidates and clients. Net fees for ECM for the first quarter grew by 41% year-on-year, while net fees from independent contractors grew by 26% year-on-year.

Turning now to the regional and sector split for the quarter, we continue to have a well-balanced business, that's geographically and by sector. 97% of our net fees come from our top three regions, with DACH, EMEA excluding DACH, and the US, recording net fee increases of 26%, 29% and 27% respectively. From a sector perspective we retain a strong and unique position in providing STEM skills. Technology remains our largest sector and it grew by 30%, with very strong performances in Germany, the Netherlands and the UK. Life Sciences grew by 23%, driven largely by growth in the US. And Engineering grew by 31%, with strong growth in the Netherlands and the US. Turning now to each region in turn, starting with DACH. The region grew 26%

year-on-year, and the growth is driven primarily by technology, with increased demand for software development and ERP implementation skills. Solid growth was also delivered in both Engineering and Life Sciences. EMEA excluding DACH grew 29% year-on-year. Across the region there was strong growth in Technology, with high demand for software developers and project managers. The Netherlands experienced strong growth in Engineering. Pleasingly the UK also continued its trend of strengthening performance, with net fees up 29% year-on-year, driven by Technology roles. The US grew 27% year-on-year, with growth delivered across all main sectors. Life Sciences, with increased demand for quality assurance, medical writing and clinical operation skills. Engineering, with high demand for construction management roles. And Technology, with demand for mobile application and software development skills. And finally, the APAC region which grew by 71% year-on-year. This growth is driven primarily by Technology, with high demand for cyber security and IT consulting.

Finally, looking at the future visibility of our contract business and the strength of our balance sheet. We've seen continued growth in the order book, up 42% versus the same time last year, which is well spread across DACH, the US and EMEA excluding DACH. ECM remains a key product representing 46% of the contract order book. We also have a strong balance sheet, with net cash at the end of the quarter of £41 million. This is down since the year end, and since the same time last year, but for good reason. The sharp increase in the number of contractors, together with the timing of performance bonuses, related to the record performance of FY21. So to sum up, we are reporting a very positive trading performance. We've delivered strong growth in net fees across all geographies and sectors. The contract order book continues to grow, giving us increased visibility of future revenues, and we have a healthy balance sheet position. With that, I'll hand back to Timo.

Timo Lehne: Thank you, Andy. As you have heard Q1 has been another period of very strong trading, a result of continued great execution by the team, but also aligned with the right strategy. Our focus on strategic execution has not wavered, and we remain driven to deliver growth. While we are mindful of the geopolitical and macroeconomic challenges that may be ahead of us, we remain positive about our growth prospects through 2022 as we continue to position ourselves as the leading STEM talent provider in the best STEM markets. Thank you very much.