Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SThree PLC (LSE:STEM, Financial) delivered a strong performance despite challenging macroeconomic conditions, with significant operational enhancements preparing for future growth.
- The company has successfully implemented a digital-first platform in three of its largest markets, showing early benefits and positioning for future advancements.
- SThree PLC (LSE:STEM) has a strong focus on STEM and flexible talent, with 84% of its business now in contracts, providing resilience and a more profitable revenue stream.
- The company reported a 5% year-on-year increase in profit before tax, driven by lower average headcount, tight cost control, and higher interest income.
- SThree PLC (LSE:STEM) maintains a strong balance sheet with net cash increasing from GBP83 million to GBP90 million, supporting future ambitions and strategic investments.
Negative Points
- Net fees were down 7% from record highs in the prior year, reflecting ongoing softness in new business and challenging market conditions.
- The permanent placement segment, a smaller part of the business, declined by 18%, impacted by tough market conditions and a strategic shift towards contracts.
- The contract order book decreased by 2% year on year, indicating a slowdown in new placements due to prolonged market uncertainty.
- Operating profit margins are expected to temper in the second half of the year due to planned investments and additional costs related to digital platform rollout.
- Market sentiment remains subdued, with new project expenditure commitments taking longer, resulting in continued subdued new business activity.
Q & A Highlights
Q: Can you elaborate on the impact of the digital-first platform rollout and its expected benefits?
A: Timo Lehne, CEO, explained that the digital-first platform is a significant strategic initiative aimed at enhancing operational efficiency and productivity. The rollout has begun in the US and UK, with Germany underway. Initial benefits include cost efficiencies, and as more functionalities are added, productivity improvements are expected. This platform is integral to driving higher margins over the medium term.
Q: How has the contract business performed, and what are the expectations moving forward?
A: Andrew Beach, CFO, noted that the contract business, which now represents 84% of net fees, showed resilience with only a 4% decline despite market softness. Strong contract extensions have offset new business challenges. The contract order book provides significant forward visibility, with 75% of consensus net fees for FY24 already recognized or booked.
Q: What is the current financial outlook for FY24, and how does it compare to market expectations?
A: Timo Lehne, CEO, stated that SThree expects FY24 performance to align with market expectations, with profits anticipated to be the second highest among UK staffing firms. Despite subdued new business activity, robust contract extensions and strategic investments position the company well for future growth.
Q: Could you discuss the regional performance and any notable trends?
A: Andrew Beach, CFO, highlighted that DACH remains the largest region, contributing 34% of net fees. Growth in the Netherlands, Middle East, and Asia was offset by declines in DACH, the rest of Europe, and the US. The engineering sector, particularly clean energy, showed strong demand, partially offsetting weaknesses in technology and life sciences.
Q: How is SThree addressing the evolving expectations of employees and enhancing its value proposition?
A: Timo Lehne, CEO, emphasized the company's focus on employee engagement and inclusion to attract and retain top talent. Enhancements to the employee value proposition and the rollout of the digital platform are key initiatives. The company is committed to providing a supportive environment with advanced tools to boost productivity and retention.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
