Preliminary Results Presentation Prelim Results Prelim for Results the year for ended the year 30 November ended 30 November 2008 2008 1
The SThree Team Russell Clements Chief Executive Officer Russell has served as SThree s Chief Executive Officer since 2004 having previously held the position of Deputy Chief Executive Officer since 2001. He joined Computer Futures in 1986 shortly after its inception, recruited by the co-founders as their second employee. He subsequently served as Director and as Managing Director of Computer Futures and was involved in the creation of a number of the SThree brands. Alex Smith Chief Financial Officer Prior to joining SThree, Alex held the position of Integration Finance Director at TUI Travel plc, the company formed through the merger of First Choice Holidays plc and the tourism businesses of TUI AG. Prior to this he was Finance Director of First Choice's Mainstream Sector. His earlier experience included three years with W.H.Smith including a period as Managing Director of its Travel Retail business. He has also held financial roles at Travelodge and Forte. He is a Chartered Accountant trained by Price Waterhouse, London. Claire Moore Head of Investor Relations Claire has been with the group since 1994 when she joined as a recruitment consultant. Initially working in sales management for a variety of brands including Computer Futures &, Claire moved to a group role reporting to the CEO as Head of Business Research in 1999. Claire subsequently became Head of Investor Relations shortly after the IPO. 2
Introduction & Overview Disclaimer: Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be places on forward looking statements 3
Full Year 2008 Financial Highlights 2008* 2007 % change Revenue 631.5m 522.7m 20.8% Gross profit (fee income) 218.9m 182.7m 19.8% Operating profit 56.8m 52.3m 8.6% Conversion ratio 25.9% 28.6% -2.7% pts Profit before tax 56.0m 50.3m 11.3% Basic earnings per share 29.9p 25.2p 18.7% Total dividend 12.0p 9.3p 29.0% Note: Conversion Ratio = operating profit to gross profit * Before exceptional items 4
SThree: An Overview Specialist staffing business - profitable every year for 22 years International business now 45% of GP, non-ict now 23% of GP Gross profit split 52% contract / 48% permanent Highly cash generative throughout the cycle Flexible business model Multi-brand & sector approach, niche specialisations in ICT, Accountancy & Finance, Banking, Engineering, Oil & Gas, Pharma & Healthcare, HR, Energy, Legal, Sales & Marketing and Public Sector Purely organic growth to date driven by expansion of multi-brand model Over 2,200 staff, 58 offices in 11 countries Long serving home grown management with significant equity participation by management and staff circa 20% Strong SME franchise Highly diversified client base of circa 7,000 5
33 UK Offices London SThree HQ SThree Group Training SThree Group Finance FS Group Progressive Real Resourcing JP Gray HR Staff Search IT Job Board Nottingham Real Resourcing Birmingham FS Group Progressive Real Resourcing Leeds Progressive London (City) Orgtel Madison Black Thames Valley FS Group HR Staff Search Progressive Bristol FS Group Progressive Manchester FS Group Progressive HR Staff Search Edinburgh FS Group Glasgow Progressive Aberdeen Progressive 6
25 Non-UK Offices New Offices opened / opening in 2009: Hamburg FS Group Dusseldorf Progressive Frankfurt Real Resourcing SThree Training Singapore Progressive Marseilles FS Group Offices opened in 2008: Amsterdam Madison Black Dubai Sydney Progressive Paris Pre-2008 Offices: Amsterdam FS Group (2000) (2002) Progressive (2002) Brussels FS Group (1998) Dublin FS Group (1999) Frankfurt FS Group (1999) (2006) Munich FS Group (2006) Progressive (2004) Hong Kong (2007) Pre-2008 Offices: Paris FS Group (2003) Progressive (2006) New York (2006) Rotterdam FS Group (2007) Brussels (2007) Amsterdam SThree Training (2007) IT Job Board (2007) Real Resourcing (2007) 7
Key Performance Indicators: Permanent Growth in Permanent Placement Volume Growth in Permanent Average Fee 12,000 +7.0% +5.9% 12,000 10,236 10,355 9,780 10,000 9,568 10,000 8,563 7,915 8,000 7,685 8,000 7,407 6,000 6,023 6,000 4,460 4,000 4,000 2,000 2,000 0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Source: SThree Accounts Notes: Candidates the Group has placed with clients on a permanent basis and for whom it has sent the client an invoice during the relevant period The average permanent placement fee is calculated using the total placement fees for the relevant period, including the ITJobBoard advertising income, divided by the number of placements for the period 8
Key Performance Indicators: Contract Growth in Contract Runners Growth in Gross Profit Per Day Rate 7,000 +1.5% 90.00 +9.7% 78.30 80.00 6,000 5,662 5,745 71.40 70.00 64.90 5,000 4,719 58.40 4,365 60.00 51.10 4,000 3,735 50.00 3,000 40.00 2,000 30.00 20.00 1,000 10.00 0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 0.00 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Source: SThree Accounts Notes: Contractors of the Group that are on placement with one of the Group s clients at the end of the relevant period The average gross profit per day per contractor is calculated by taking gross profit from contract staffing for the period and dividing by the average number of active contractors and the number of working days in the period 9
Gross Profit & Gross Margin Gross Profit ( m) +20% 250 218.9 200 182.7 Gross Margin % 40% 35% 33.2% 31.3% 30% 34.5% 34.9% 34.7% 150 135.5 25% 100 75.9 104.5 20% 15% 50 10% 5% 0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 0% FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Source: SThree Accounts Gross margin percentage remains broadly level despite a change in the business mix towards contract 10
Operating Profit & Conversion Ratio 60.0 50.0 40.0 Operating Profit ( m) 41.0 52.3 +8.6% 56.8 Conversion Ratio (operating profit as a % of gross profit) 35% 30% 25% 22.9% 28.2% 30.3% 28.6% 25.9% 30.0 29.5 20% 15% 20.0 17.4 10% 10.0 5% 0.0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 0% FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Conversion ratio impacted by reduction in UK operational gearing Source: SThree Accounts 11
Brand Development & Business Analysis 12
Brand Development: Sector Expansion * ICT Accountancy & Finance Banking Engineering / Oil & Gas Pharma & Healthcare Human Resources Energy Legal Sales & Marketing Public Sector Sectors pre-2007 New Sectors 2007 New Sectors 2008 *as of 2008 Computer Futures re-branded to FSG 13
Brand development: 10 year international expansion Paris Amsterdam Sydney Frankfurt 24 Singapore 23 Hamburg 22 Dusseldorf 21 20 19 18 Dubai 17 Amsterdam 16 Amsterdam 15 Rotterdam 14 Brussels 13 Hong Kong 12 Munich 11 Frankfurt 10 New York 09 Paris 08 Amsterdam 07 Munich 06 Paris 05 Amsterdam 04 Amsterdam 03 Dublin 02 Frankfurt 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 01 14
Brand Development: Sector Expansion ICT Global Markets Engineering & Oil+Gas Pharma & Healthcare JP Gray JP Gray Accountancy & Finance Human Resources Energy Public Sector Progressive Progressive Progressive Legal Sales & Marketing Computer Futures Computer Futures Computer Futures Computer Futures Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Progressive Progressive Progressive Progressive Amsterdam Progressive Orgtel Orgtel Orgtel Orgtel Orgtel HR Staff Search HR Staff Search HR Staff Search HR Staff Search HR Staff Search HR Staff Search JP Gray JP Gray JP Gray JP Gray JP Gray JP Gray Madison Black Madison Black Madison Black Madison Black Madison Black Madison Black Orgtel Orgtel Orgtel Orgtel Orgtel Orgtel Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Real Resourcing Amsterdam Amsterdam Amsterdam Amsterdam Amsterdam Progressive Progressive Progressive Progressive Progressive Progressive Computer Futures Computer Futures Computer Futures Computer Futures Computer Futures Computer Futures 2004 2005 2006 2007 2008 2009 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 15
Geographic Analysis by Location of Client Gross Profit Growth In UK/Non-UK GP 2008 2007 2%2% 10% 5% 70% 64% 62% 60% UK 55% Benelux France 50% 26% Germany USA 40% RoW 30% 25% 218.9m 6% 2%1% 4% 19% UK Benelux France 68% Germany USA RoW 182.7m 20% 10% -1% 0% FY 08 FY 07-10% United Kingdom Europe and Rest of World Source: SThree Accounts 16
Sector Analysis by Candidate Skillset Gross Profit Growth In ICT / Non ICT GP 2008 23% 60% 55% 50% 40% 35% 33% ICT 30% 218.9m 77% Non ICT 20% 10% 12% 2007 18% 0% FY08 FY07 ICT Non ICT ICT Non ICT 182.7m 82% Source: SThree Accounts 17
Permanent/Contract Analysis Gross Profit 2008 48% 52% Growth In Permanent/Contract GP 45% 42% 40% 35% 30% 27% 28% Permanent 25% Contract 20% 218.9m 15% 13% 2007 10% 5% 0% FY 08 FY 07 49% 51% Permanent Contract 182.7m Permanent Contract Gross margin 2008 2007 Group (blended) 34.7% 34.9% Contract 21.5% 20.8% Source: SThree Accounts 18
Business Breakdown Gross profit Real Resourcing 7% 6% Others 11% FS Group 28% 60% 50% 40% 30% Percentage Change in GP 35% 47% 43% 37% 28% 49% 20% 20% 17% 19% 18% 16% 22% 10% Progressive Computer Recruitment 20% Associates 28% 0% Total FS Group Associates Progressive Computer Recruitment 2008 2007 Real Resourcing 218.9m Source: SThree Accounts 19
Business breakdown by client industry sector Pharma & Biotech 4% Commodities & Utilities 4% Media 4% Retail 3% Other 7% ICT 24% Pharma & Biotech 3% Commodities & Utilities 3% Public Sector 6% Media 5% Retail 3% Other 6% ICT 27% Public Sector 9% Manufacturing 13% Financial Services 5% Investment Banking 12% Professional and Support Services 15% Manufacturing 12% Financial Services 4% Investment Banking 14% Professional & Support Services 17% Full year 2008 Full year 2007 Despite ICT representing 77% of candidates placed, only 24% of clients are in the ICT sector Source: Internal MIS analysis 20
Cost base analysis IT & Professional 9% Advertising 5% Occupancy 7% Other 4% Other (4%) Advertising (5%) Sales staff / sales related 75% Central / support staff 25% Cost base Payroll Costs 75% Payroll costs The Group operates a relatively low fixed salary and has a young consultant demographic Typical consultant remuneration 40% fixed, 60% variable 21
Flexible staffing model - an example 25% 21% 20% 15% 19% 43% 10% 47% 55% 5% 0% 57% -5% Volume of UK Perm Placements 53% UK Perm Sales Headcount 45% -10% -15% -20% -25% -17% -8% -7% -19% ICT Non ICT UK Overall Flexible staffing model generates real time adjustment to market change Source: SThree Accounts 22
Financial Results 23
Income Statement 2008 m 2007 m Change % Revenue 631.5 522.7 +20.8% Gross profit 218.9 182.7 +19.9% Operating profit 56.8 52.3 +8.6% Net finance cost (0.8) (2.0) (60.0)% Profit before tax 56.0 50.3 +11.3% Taxation (16.8) (16.5) +1.8% Profit after tax 39.2 33.8 +16.0% Note: Before exceptional items of 2m pre tax Source: SThree Accounts 24
Balance Sheet Balance Sheet m 30 Nov 2008 2 Dec 2007 Goodwill & intangibles 12.3 10.8 Property, plant & equipment 6.6 6.5 Deferred tax 3.1 3.1 Net working capital 58.7 77.9 Tax liability (10.8) (4.9) Provisions (3.9) (3.5) 66.0 89.9 50m invoice discounting facility with RBS until Feb 2010 20m committed Base rate +0.75% Focus on working capital Debtor days at 43 vs 59 at 2 Dec 07 Debtors ageing significantly improved International contractor payment terms extended in Q4 2008 Net cash 24.6 3.5 Net assets 90.6 93.4 Cash generative business, strong operating cashflow, 31.3m of shares repurchased in the year Source: SThree Accounts 25
Cash Flow 2008 'm 2007 'm Operating profit (before exceptionals) 56.8 52.3 Share awards charge 0.8 0.4 Depreciation and amortisation 5.9 3.8 Decrease / (increase) in debtors 16.5 (58.5) Increase in creditors 6.7 33.4 Increase/(decrease) in provisions 0.3 (2.1) Net cash inflow / (outflow) from operating activities 87.0 29.3 Taxation paid (11.4) (2.1) Capital expenditure (6.2) (14.0) Dividends paid (12.0) (6.3) Cashflow before share buyback & financing 57.4 6.9 Source: SThree Accounts 26
Earnings Per Share 2008 2007 Change % Profit After Tax 39.2m 33.8m 16.0% Minority Interest * ( 2.0m) ( 1.2m) 66.7% Profit attributable to equity holders of the company 37.2m 32.6m 14.1% Weighted average number of shares for basic EPS 124.7m 129.8m -3.9% for fully diluted EPS 127.7m 135.7m -5.9% EPS basic 29.9p 25.2p 18.6% diluted 29.2p 24.1p 21.2% Note: * Before exceptional items of 2m pre tax and 1.4m post tax Source: SThree Accounts 27
Dividend & Share Buy-back Dividend 2008 2007 Growth Total Dividend 12p 9.3p 29.0% Final dividend of 8p (2007: 6.2p) payable on 8 June 2009 to shareholders on the register at 1 May 2009 Share Buy-back Shares Total Cost m Average Cost per share % Of Issued Capital * Total Share Buy-back 08 16.6m 31.3m 187p 13.6% Authority to buy back up to 10% of shares renewed at AGM 24 April 2008. Since this date 11.3m shares have been purchased representing 8.53% of issued share capital Management confident of business capacity to support robust dividend policy *Issued share capital as of 30 November 2008 28
Summary & Outlook 29
Health of Market - Perm hire KPIs Permanent hires starting within one month 30% 25% 21% 22% 23% 20% 17% 15% 14% 25% 16% 16% 10% 5% 0% 2007 H1 2007 H2 UK Intl 2008 H1 2008 H2 Source: SThree MIS / Internal Analysis The percentage of permanent candidates able to start in same period is an indication of prevailing labour market conditions 30
Health of Market - Perm dropouts KPIs Permanent placement dropouts 14% 12.9% 13.1% 12.7% 12% 11.0% 10.7% 11.6% 10% 8% 9.5% 8.8% 6% 4% 2% 0% 2007 H1 2007 H2 UK Intl 2008 H1 2008 H2 Dropouts are a useful indication of labour market tightness ¹ Drop outs are defined as potential permanent placements which having formally accepted an offer through an SThree company ultimately do not take the position as a consequence of alternative opportunities Source: SThree MIS / Internal Analysis 31
Health of market P1/P2 recovery of prior year contract runners Percentage of prior year peak figure 100% 96% 95% 95% 89% 90% 98% 85% 80% 75% 70% 65% 60% 55% 50% 2009 2008 2007 2006 Volume decline in runners offset by improvement in value 32
Business mix - a transformation 2008 2007 2006 59% 41% 47% 53% 42% 58% UK, ICT Gross Profit Other A clear majority of group business was generated from outside UK ICT sector in 2008 33
Summary & outlook Significant growth achieved despite extremely challenging market conditions Market for 2009 uncertain but certain to be more difficult than 2008 Trading in first two periods in line with Board expectations - decline in deal volumes offset by increased deal values Strong cash position + no debt + counter cyclical cash hedge = robust dividend Increasing exposure to international markets / structural growth Ability to continue to make prudent investments for future Agile business model, flexible workforce, seasoned management Well positioned to weather current market conditions Good growth for a yield stock, good yield for a growth stock 34
Preliminary Results 2007 2008 Questions Thank you for listening, please feel free to ask any questions 35
Preliminary Results 2007 2008 Supplementary Material 36
Relative Market Position SPECIALIST HIGHER AVERAGE FEE GENERALIST LOWER AVERAGE FEE 37
Operating free cash flow per share (p) SThree Michael Page 12 p 38 p 41 p 65 p Hays Robert Walters 13 13 p 15 p p 32 p 2008 2007 Source: SThree Accounts, UBS/Reuters OFCF calculated as EBITDA less Capex less change in working capital 38
2008 Relative performance against peer group PBT ( m) PBT Growth % Hays 214.1 Michael Page 140.0-5.0-7.1 SThree 56.0-24.3 Robert Walters 18.8 SThree 11.3 Michael Page Hays Robert Walters EPS (p) EPS Growth % Michael Page 30.1 SThree 18.7 SThree 29.9-3.7 Michael Page Robert Walters 17.2-4.2 Hays Hays 11.0-25.9 Robert Walters DPS (p) DPS Growth % SThree 12.0 SThree 29.0 Michael Page 9.5 Michael Page 18.8 Hays 5.8 Hays 7.4 Robert Walters 5.0 Robert Walters 5.3 Source: SThree Accounts. UBS/Reuters estimates 39
Performance management systems Actual screenshot Permanent Consultant 40
SThree history - 22 years of profit throughout the cycle *UK GDP growth (constant prices), year on year annual percentage change Group formed following VC investment IPO Business starts as Computer Futures Russell Clements joins First spin off brand First UK regional office opened First European office opened First sector expansion Banking & Finance First Non ICT Brand (JP Gray) Russell Clements appointed CEO First US office opened First Middle East & Asia Pac offices opened 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: World Economic outlook database IMF 41
SThree Corporate Structure 42
Minority Interest Model High performing management with track record of building terms and developing succession Entirely new business OR new office/sector/territory for an existing brand No obligation to buy Management have no put option SThree controls the board of all M.I. businesses Management buy in at embryonic stage at fair market value. Management typically hold 5-15% economic stake Typical 5 year holding period. Thereafter management can request buy out in cash or SThree shares at SThree s discretion 43