Release Date: January 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SThree PLC (STU:S8T, Financial) has a strong focus on STEM and contract business, which now represents 84% of group total, providing a more profitable and predictable revenue stream.
- The company has delivered its third highest net fee and operating profit performance on record, up 13% and 14% respectively on pre-COVID performance.
- SThree PLC's technology improvement program is on track, with 80% of the business now on the new platform, enhancing productivity and performance.
- The company has maintained a sector-leading operating profit conversion ratio of 17.9%, reflecting effective cost management.
- SThree PLC has a robust balance sheet and has launched a share buyback program of up to GBP20 million, demonstrating confidence in its financial position.
Negative Points
- The company has faced prolonged challenging market conditions, impacting new business activity and resulting in a 9% decline in net fees on a constant currency basis.
- SThree PLC expects FY25 profit before tax to be around GBP25 million, including up to GBP7 million of one-off costs for operational efficiencies.
- The contractor order book is down 10% year-on-year due to a slowdown in new placements amid prolonged market uncertainty.
- Permanent placements, a smaller part of the business, declined 18% due to tough market conditions across most regions.
- The company's net cash position decreased by 16% due to temporary increases in trade debtors and other working capital changes.
Q & A Highlights
Q: Can you elaborate on the impact of the challenging market conditions on SThree's financial performance in FY24?
A: Andrew Beach, CFO, explained that despite the prolonged market uncertainty, SThree delivered its third highest net fee and operating profit performance on record, up 13% and 14% respectively from pre-COVID levels. This was achieved through a strategic focus on STEM and flexible talent, alongside tight cost management. However, net fees were down 9% on a constant currency basis, with contract net fees declining 7% and permanent net fees down 18% due to tough market conditions.
Q: How has SThree's contract business performed, and what are the expectations for FY25?
A: Timo Lehne, CEO, noted that the contract business now represents 84% of group net fees, up from 82% a year ago. The focus on contract extensions provided sector-leading visibility into FY25, despite new business activity remaining soft. The Board expects FY25 profit before tax to be around GBP25 million, including up to GBP7 million of one-off costs for operational efficiencies.
Q: What strategic advancements has SThree made in its technology improvement program?
A: Timo Lehne highlighted that 80% of SThree's business is now on the new technology platform, which is a core enabler for mid to long-term opportunities. The program has introduced AI-enhanced tools to boost productivity, with early proof points showing GBP2 million in annualized savings in the US. The rollout is on track across major markets, with further enhancements planned for FY25.
Q: How is SThree positioned to capitalize on future market opportunities?
A: Timo Lehne emphasized that SThree is well-placed within structural growth opportunities, such as clean energy and technology adoption. The company is focused on the right markets and skills, with a strategy aligned to megatrends like digital transformation. Despite short-term challenges, SThree remains optimistic about capitalizing on these opportunities as market conditions improve.
Q: What are SThree's capital allocation priorities, and how does the share buyback program fit into this strategy?
A: Andrew Beach stated that SThree aims to maximize shareholder value by maintaining a strong balance sheet and providing sustainable dividends. The company prioritizes capital deployment towards growth opportunities, including potential M&A. The GBP20 million share buyback program, launched in December, is part of this strategy, with over GBP3 million of shares repurchased to date.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
