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Welcome to the SThree Full Year Trading Update Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Mark Dorman, CEO; and Alex Smith, CFO. Mark, over to you.
Well, thank you, Tamsin, and good morning, good afternoon, good evening, everyone, depending on where you are in the world as we go through SThree's full year 2020 update. What I'd like to do today is I'll give a brief overview of the year, and then I'll hand over to Alex, who will give us the numbers in detail, and then we'll also give you an update on our sentiment survey that we do with many of our clients as we got much closer to them in very different circumstances in 2020 than we have done in previous years. But first off, an overview of 2020. And what an extraordinary year 2020 has been for all of us in the way in which it is rolled out, certainly not what we expected when we started back this time last year for SThree. We came into the first quarter focused on our reinvigorated strategy that we highlighted at our Capital Markets Day, investing in our plans to grow for the future. And then as we monitored activity and things happening in Asia through February at the end of Q1, we quickly and decisively had to shift our focus to dealing what was and has become a once-in-a-century event of the global pandemic of COVID-19 and its associated impacts. I'm pleased to say that the SThree team enacted quickly and decisively in being able to pivot quickly, adjust core policies, react flexibly and create a framework for us to operate in this most challenging of environments. Our focus became the safety of our people, our clients and our candidates, ensuring that we could operate in any environment through this pandemic and of course, a real focus on the financial stability of the business. We also created a framework in understanding how would we adapt to this pandemic as it played out through multiple quarters. Our initial response back in February and March to the unfolding events throughout the world, the phase that we're now in, which is ongoing management as things remain highly volatile as an operating environment, and then ultimately, when the underlying public health crisis has been resolved, and it's great to see that we have a vaccine on the horizon that we've moved then towards recovery and whatever the next normal is. We can see that we've had a very resilient performance in 2020, largely as a result of our focus on our purpose, which has never felt more relevant, of bringing skilled people together to build the future, and we'll talk more about that later; our strategy of focusing on STEM skills and flexible working, which has served us well; and an amazing ability by all of the people at SThree to execute and incredibly well through this environment. You can see that we have remained resilient throughout. And as of today, we still have around 95% of our people working from home or out of the office around the globe as we're reacting to the second and third wave of the COVID-19 pandemic. In those circumstances, however, and in line with our framework that we set out in our ability to operate regardless of the circumstances, we have actually seen our productivity go up 15% year-over-year in Q4, which is a remarkable testament to all of the people at SThree. And of course, we've built on the strength of our relationships with our key stakeholder groups. We placed over 14,000 candidates this year, and remaining close to those candidates and candidate communities has been a hallmark of our success. We've also engaged in our #STEMSeries, which is our thought leadership programs to engage with the market, our clients and our candidates in showing how we understand flexible working, the use of technology and other STEM skill requirements as companies throughout the world have had to adjust their operations as well. And so it's in those remarkable conditions and a once-in-a-century event it's great to see that SThree has provided a remarkable resilient performance. And it goes without saying that I'd like to thank all of the team at SThree, who individually and collectively have maintained poise and focused on execution to deliver a good set of results within the current environment. So with that, I'll hand over to Alex, who will run through the numbers. Alex?
Thank you, Mark, and good morning, everybody. So in terms of the full year, net fees for the group were down 8%, with Contract down 7% and Permanent down 13%. We saw a substantial sequential improvement in Group performance quarter 4 versus quarter 3, with net fees down 7% in Q4 against a decline of 14% in Q3. And our Contract business model demonstrates and has continued to demonstrate particular resilience throughout the year. Indeed, our contractor order book ended the year down 10% compared to down 14% at the end of Q3. And we saw notable performances in our U.S. and German businesses and high levels of demand in life sciences and technology more broadly. We were pleased to provide an unscheduled upgrade stock exchange announcement on the 23rd of November, and we continue to expect the results for the year in terms of PBT to be marginally ahead of the top end of the range at that date of GBP 27.7 million. Performance regionally, starting with DACH. DACH has been very resilient, with full year net fees down 3% and quarter 4 net fees down 2%. Life Sciences and DACH has been strong, with net fees up 4% for the year. This was a result of an exceptional Q1 and increased demand in the second half of the year in clinical research and development. We've also seen an increase in demand for cybersecurity and data science skills in our technology sector. EMEA excluding DACH was down 16% in the year, largely reflecting the U.K.'s challenging performance, with the Netherlands, our largest country in the region, declining 10%. Our Engineering business in the Netherlands showed strong growth, up 20%. U.S. continued its strong performance into Q4, up 11%, with full year up 2%. Life Sciences has been particularly strong, growing 16%, driven by strong demand in the second half in clinical operations, product development and quality assurance. We also saw strong growth in Technology, up 9%. APAC was down 26% in the year, primarily driven by the more transactional nature of our business in Japan, which is 94% Permanent. Thinking about our positioning at the year-end. Cash, very strong performance, GBP 50 million of net cash compared to GBP 11 million this time last year. And that's a function of tremendous efforts in terms of collections and also a function of our business model, which released this cash when the Contract book slows. The mix of business has shifted in favor of Contract, now representing 76% of net fees, up from 74% last year, very much in line with our strategy. And we remain a geographically diverse business with offices in 15 countries, with 89% of fees generated from markets outside of the U.K. So now I'll hand over to Mark, who will take us through the latest sentiment survey. Mark?
Thank you, Alex. So a good set of resilient results. And through this pandemic, as we've talked before, we've spent a significant time engaging with our clients globally. As you know, this will be our third update on sentiment. We've now spoken to over 500 of our clients through that cycle to get a detailed understanding of their intent, where their focus is, so we can understand how we can serve them best and see into the future as to where their focus has been. And so just a brief update on where we are there. And so where are we a year on? So if I think about our purpose of bringing skilled people together to build the future and the strategy for SThree, it's the focus that we set at the center of 2 long-term secular trends. One is around STEM skills. And for us, that really means skills within life sciences, technology and engineering. And the other is towards flexible working. Now of course, we've been talking about flexible working. Largely, we talk about Permanent and Contract and the full service that we can provide moving forward, and we'll be talking about that for a while. In 2020, of course, it's become normal within the lexicon of business talk as to focus on flexible working and what that means. But as well within STEM skills, what we're seeing is a continued demand increase. And I recall in my very first trading update, which seemed like a lifetime ago, but it was only in summer of 2019, I talked about us entering into the fourth industrial revolution. And as we'll see later, what the pandemic has done has accelerated the demand needs of those skills, those STEM skills across every sector. And what that's done is broadened the ecosystem of companies regardless of industry that are looking for those STEM skills, particularly skills in technology, but not limited to them. And so when I think of the need for technology skills and life sciences and advancements in telehealth as well as the need to think about the immediate problems we have in front of us or indeed, advanced automation and data science in manufacturing and logistics across a whole range of industries, we're seeing the demand for what we do increase broadly. In terms of flexible working, the nature of the work that's done by those seasoned professionals that we placed with those skills, these tend to be time-bound, high-impact projects. And so therefore, there's an increasing need for agility, but also flexibility for the companies that are looking to employ them. And that brings us to the themes that we started talking about at our update in the midyear in our sentiment survey for our Q2 update, which was these 3 broad themes that are consistent and consistently coming out from our clients. One is around the management of a more flexible and resilient workforce of the future. And it's clear that post this pandemic, that need for more flexible solutions for workforce is something that will remain. We're also seeing a rebuilding of supply chains with a focus on resilience and sustainability globally. So this notion of from just-in-time to just-in-case being rebuilt throughout all of our clients across multiple industries with a global supply chain. And last, but not least, and of course, driving a lot of disruption and transformation across every industry is the acceleration of digitization, and that's everything from automation, cybersecurity, building new technology infrastructure and new e-channels, whether those are channels to customers or channels to other people within the supply chain that you operate in. And as I said before, if you're a CEO looking forward now, if digital transformation wasn't at the top of the list prepandemic, it certainly is now. And so what does that mean in terms of the need for talent and STEM talent moving forward? Well, what we're seeing in our latest sentiment survey, the investing is back on the agenda. If you think about the cycle that we've gone through, most companies took a pause to understand the dynamics of what was happening as the global pandemic hit in -- largely in Q2, in Q3, and then readjusted their business to focus on the future, dealing with what was immediately in front of them and then thinking forwards through the pandemic as to where their investment would be. And what we're seeing is that 40% of our clients that we see are expecting the employees will require digital reskilling, and so they're investing to ensure ongoing resilient post pandemic. In terms of agility, this has become the key word, along with resilience, in terms of how do they manage a more flexible and agile workforce blending both permanent people in their business, but more and more towards accessing seasoned professionals in a time-bound way through contract arrangements. And last but not least, no surprise, is that the talent and demand is the same talent -- the demand still exceeds supply, and that will only be exacerbated moving forward as that need and broadened ecosystem and requirement for that same talent increases moving forward. And so building into that a little bit. Management of a more flexible and resilient workforce of the future, what does that mean? It is that we're seeing that 34% of our clients are investing in new high-caliber talent, and 45% of them have specifically stated that they demand more adaptable employees. That means they're looking for more flexible solutions in their workforce to help them deliver their solutions. And a couple of quotes from our clients on the right there that I'll let you read to yourself. But what's clear is our domain expertise in understanding not just where the talent lies, but the requirements of those niches that we operate in, underpin our value to our clients in understanding their needs and matching them with the right talent at the right time to deliver value immediately. And as we think about this notion of that digital transformation and the acceleration we've seen, in terms of what our clients are focused on, 48% are investing in technology, no great surprise there. But along with that, many of them are adapting new agile methodologies or new ways of working, and therefore, accessing talent in different ways is becoming important to them as that reaches the top of their agenda. And some of the talent sectors that are in demand that we're seeing, along with our investment in technology, there's no great surprise that 56% are looking towards infrastructure network and cloud solutions that are the frameworks and infrastructure to support that digital transformation. Cybersecurity is close to 60% of talent that people are looking at to make sure that they keep themselves safe. And the ways in which we're working that flexible environment, 44% are looking for people that have expertise in mobile applications. And you can see that played out in our performance, certainly in our U.S. business, mobile technology driving a lot of the technology growth there. And if we look forward to long-term secular trends, which are driving the demand and being accelerated by the pandemic, we can see that the demand patterns for STEM skills have been increasing, with 37% of our respondents say that their hiring has already returned to normal and 42% expecting to return to normal in the next 12 months. So within the next 12 months, we expect that close to 80% of our clients will have their hiring patterns back to normal, specifically for STEM skills. In terms of customer challenges, we can see that the value we add in finding the right candidates at the right time with the right skills is still critically important. But what the pandemic has done is enabled our clients to become more flexible as to where they're looking for that talent and seeing that the talent is more important than the geography that they happen to live in. And lastly, but not least, our purpose of bringing skilled people together to build a future has never been more relevant as we see that 70% of our clients, when they're looking for talent, want STEM skills, and they want them to deliver value from day 1, which speaks to our core value of delivering Contract solutions with the talent that can hit the ground running and deliver on projects from day 1. And what we see, this has been driven by the impact of the pandemic, which has accelerated the future in terms of pulling forward trends that were already happening. But we've also got in certain sectors pent-up demand that still needs to be released. Some of it may be obvious in terms of -- within life sciences, medical devices and discretionary medical procedures are being put off as people deal with the pandemic, quite rightly, in front of them, but that will have to be released at some point. We'll see the same in other sectors as life begins to come back to normal and through the balance of next year, but certainly in a more volatile way. And what I'd say is that SThree, with its focus on STEM skills and flexible working, is perfectly poised to take advantage of those trends as they accelerate into the future. And so with that, a bit of an update, we'll be delighted to take your questions. So Tamsin, do you want to guide us to how we would do that?
[Operator Instructions] And a question from Sanjay Vidyarthi from Liberum.
Mark and Alex, you talked in the statement about market share gains and also about improving contract retention levels. Just trying to understand a little bit if you could talk about what you've seen in terms of churn, in terms of how much you have seen that kind of contract retention levels increase, but also how much in the way of business wins.
So a little bit to unpack there. Thank you, Sanjay, for the question. So we've seen our retention rates improve our contracts by about 1 percentage point year-over-year. And so our retention rate is now close to 90%. What's the...
93% in Q4 compared to 92% last year.
Yes. So we are seeing good retention there. I think that's largely down to the focus and the thought we've had in engaging with the marketplace. And so we took, as you would imagine, a real focus on managing our costs thoughtfully. But we made sure that we could operate in the environment that we find ourselves in. So if I think about gains that we certainly see in Germany, for example, we focused a lot on making sure we can keep our people productive and keep them on markets. And we know that other people took a different attack early on in terms of managing that. But I think the combination of staying close to our clients, staying focused with our candidates has meant that we've been able to service our clients through what has been a very volatile situation. So we've seen that certainly in the Netherlands, in Germany and the U.S. We've certainly taken share as a result of that thoughtful approach to dealing with the market.
And just to kind of give some kind of numbers around that. For the U.S. and Germany, we've looked at the SIA STEM market estimates. For the U.S., that was down 12% for FY '20 in our financial year, which is obviously until the end of November. But that 12-month period, our U.S. business was up 2%. So a significant outperformance there. And Germany, SIA STEM, minus 16%. We were down 4%. In the Netherlands, we've looked at ABU tech roles, we're down 10%. I haven't got the full year to hand, but the last few months has been down 20-ish. So we've certainly outperformed on a 12-month basis in the Netherlands, too. That's 3 out of our 5 markets we've significantly outperformed and therefore, taking share.
Yes. So pretty significant outperformance as well, not by a point or 2.
Yes.
And we do have one more question. [Operator Instructions] And we'll go to Steve Woolf from Numis.
Hope you can hear. Just a bit more color, firstly, on the Netherlands as sort of relative underperformer within Europe. But obviously, you're flagging the engineering did relatively well. So just a bit more background on perhaps the underperformance in other regions, all those areas that were struggling. Secondly, given the demand for STEM talent, as you said with the shortages, have you got any sort of background on perhaps what average salaries might have been doing this year? I appreciate it's a fairly broad question there. And then thirdly, just your experience in Germany during the initial lockdown phases that we had during the summer and where you think that market is now positioned as we enter now another sort of month of hard lockdowns as it were there.
So thanks for that. It's a whole bunch there, Steve. Thank you. Why don't we start with the first one last? Start with the last one first, rather. So look, I -- and I'd probably lead into some of the other thoughts. So look, there's no question that the second wave of the virus in Europe that you're seeing now, so the big wave happening now and those harder lockdowns, are going to impact society generally. But I think what's -- and it may seem that because the numbers are sort of because they are particularly the impact on people's health and the death rates are, obviously, horrible things. But I think that just like we've learned to operate in that environment, many of our clients have figured out a way of how do they operate in that more flexible environment. And so I think people are probably going to look through that to an extent, but there's clearly going to be aggregate demand compression. And I think to your thought around -- in some of the relative underperforming countries, I think it largely follows that the core of this is a health crisis. And so countries that dealt well with their health crisis are countries that performed relatively well or markets that were able to adjust dealt relatively well. And the ones that didn't do so well. So you got economic impacts follow the health crisis. So I think that's certainly the experience that we saw in Q2, Q3. I think companies are better positioned now in terms of their ability to operate in that environment. There's a little bit of time to think about how that does. But still, as you look forward, it's going to be as volatile through the winter and into the spring given those dynamics that you talked about. And the only thing that we say is that our focus has really been on making sure that we can operate in that environment and continue to service our clients. And we're seeing that sequentially we're getting better in terms of our operations moving forward. And you see that even in the Netherlands that was a relative underperformer versus our portfolio. But still, as Alex highlighted, overperforming significantly the market, that we are seeing sequential improvements in our ability to operate there.
And just on the Netherlands, so we highlighted engineering growth. The engineering sector in the Netherlands represents about 1/3 of net fees. We also saw growth in life sciences, but we saw a significant step backwards in banking and finance and IT. The Netherlands, as we mentioned before, has a kind of big cap, multinational type kind of client base, which potentially has been kind of more react -- quicker to react to some of the challenges around the pandemic. In terms of the average salary, I mean, we're trying to keep some excitement for the 25th of January. But yes, in terms of salaries, we saw kind of very modest inflation if I'm looking at Q4 data right now, but kind of up 1%, something like that year-on-year in terms of salaries.
Sorry, Mark, I interrupted.
No, I was just going to say, salaries and fees have remained relatively stable through the cycle. It's been just aggregate demand has been up and down depending on where you are.
And we'll go to Adrian Kearsey from Panmure Gordon.
So 95% of employees still working from home and 15% jump in productivity in Q4. Are those kind of metrics changing the way you're thinking about rolling out your position in the U.S.? Previously, you've talked about possibly opening up more -- 2 more offices or entering new cities. With those kind of metrics, are you perhaps more tempted to take a more working-from-home approach or a more centralized pure offices, broader geographic penetration across the U.S.?
Thanks, Adrian. Look, I think it's too early to tell generally in terms of what the impacts are going to be longer term. But we, like everyone else, given the remarkable resilience that our people have shown and the flexibility that we've shown, are looking at what does our office footprint need to look like now and in the future and what are the opportunities there and what are the pros and cons of office versus flexible. I think -- and so it's too early to tell in terms of what that looks like. I think what we want to do, though, is take the lessons of this year and apply them moving forward when we come out of this. And there are certainly pros and cons for both us and for our people in making SThree a great place to work. And I think that's the focus that we'll have, is making sure that we've got the right environment for the right tools for great people to do really great work and service our clients and candidates effectively. And -- but there's no doubt there's lessons to be learned from where we are.
And that's the end of questions. Mark, do you have any closing remarks?
No. Well, thank you all. And for us, it's been quite a remarkable year in 2020. Again, just a big thanks to all of our people for showing their flexibility and resilience through a pretty extraordinary 12 months that we've gone through at SThree, and we're pleased with our resilient performance. But we look forward to seeing you all again on the 25th of January, and we'll go through our full year update with everyone. So thanks, everyone.
Cheers, thank you.
Many thanks, Mark. And thanks, Alex, and to you all for joining. This is the end of the webinar.