Good morning and welcome. Thank you for joining us today for our half-year results briefing. I'm joined by Andrew Beach, our CFO.
Good morning, everyone.
Together, we will be walking you through the half-year numbers, our strategic progress, and talking a little on outlook. As a reminder of who we are, we are the only global STEM specialist talent partner, which is a unique offering in the market. We are purely focused on STEM talent, meaning those people with skills in science, technology, engineering, or mathematics, and have been for nearly 40 years. We place people into STEM roles every day, including engineers to build wind turbines and data scientists to help businesses harness technologies. As many of you know, our well-established strategy is positioned at the center of two long-term trends: STEM and flexible talent. You can see on the left chart the distribution of our focus across STEM disciplines. The focus on these much-needed skills is where we see our long-term opportunity underpinned by long-term megatrends.
The right-hand chart shows our conscious focus on flexible talent, by which we mean short to medium-term contracts that are particularly well-suited to be filled by highly skilled STEM specialists. This focus is demonstrated by the growth of our contract business, which now represents 81% of the group total, up from 77% a year ago. Our bias towards contract provides us with a predictable and visible revenue stream and is a powerful differentiator in the market. Before Andy talks through our performance in detail, we are pleased to have delivered a resilient net fee performance in the first half of the year against a backdrop of macroeconomic headwinds and an exceptional prior year performance.
Net fees were down 2% on a constant currencies basis against exceptional growth of 25% in the same period last year, or with the benefit of FX tailwinds, up 3% overall on a reported basis. During this period, the macroeconomic climate has remained uncertain. The overarching theme is the desire of our clients to retain scarce talent in the face of continued skills shortages, evidenced in our contract extension rates and the robust pricing. Our resilient performance is underpinned by our distinct business model, with contract net fees growing 3% and the order book giving 75% visibility over the full year consensus at the half-year mark. You wouldn't believe how excited we are all about the progress we have made with our Technology Improvement Programme, which will be key to driving our long-term value.
While making this planned investment, together with maintaining appropriate headcount to ensure we are well-positioned for when the market conditions improve, the group delivered sector-leading margins, recording an operating profit of GBP 38.1 million. This progress we have made is a testament to the quality of our global teams, and I would like to thank everyone for the hard work and commitment. We have made some great achievements in the first half, and we're very excited about the prospects ahead across a number of our strategic initiatives, underpinned by a robust financial position. I will now pass over to Andy to talk us through the numbers. Andy, over to you.
Thank you very much, Timo. I thought I'd start by taking a quick look back over the last four years. FY 2019, and indeed the first half in that financial year, was, at the time, our record-ever net fees and operating profit performance. FY 2020 was hit by the pandemic, the impact on our top-line performance was relatively shallow. We bounced back quickly in FY 2021, helped by the market recovery, and returned to year-on-year growth from Q2 in that year. The first half of FY 2022 was the post-COVID peak period, when we experienced an exceptional, though unsustainable, conversion ratio before we started to see a softening of market conditions in the second half of that year.
Despite market uncertainty continuing into FY 2023, we are pleased to have achieved a resilient performance in the first half, with net fees broadly in line with last year's record-breaking period and an operating profit and conversion ratio that exceeds historical norms, even after the investment in the Technology Improvement Programme. Now, we've indexed our calendar quarter net fee performance since 2019, which is the last full year before the pandemic, to show more clearly our performance compared to other staffing businesses who all focus more on the permanent market. As the chart shows, we are much less cyclical, which we believe is due to our strategic focus on flexible talent and on STEM. Through the pandemic, our quarterly net fees fell by no more than 14% compared to our record 2019 performance.
We also recovered quickly and to a higher peak performance, achieving index growth of 33% in June 2022, compared to an average of 20% peak performance for the other staffers in December that year. Over the last two calendar quarters, we have again started to break away from the group, and this shows that we are less volatile through periods of market disruption, but also that we recover strongly and quickly as we come out of tough economic periods. That confirms that we have the right strategy and that our business is high quality through the cycle. Now, looking in more detail at the half-year FY 2023 performance. Net fees are down 2% on a like-for-like basis, though with the benefit of FX, tailwinds are up 3% year-on-year.
Operating profit for the half was GBP 38.1 million, which is down 22%, and reflects both the normalization of productivity as we ran hot in the first half of FY 2022, and the strategic investments that we are making, particularly in the Technology Improvement Programme, to secure future value. Even after these investments, excluding last year's exceptional, this operating profit is a record first-half performance for the group. Our conversion ratio, the ratio of operating profit to net fees, is 18.3%, which the first half, excluding exceptional conversion achieved in the first half of 2022, is the highest conversion achieved for the first half in 15 years. We expect this to decrease in the second half as our investment costs increase with the rollout of the new technologies into the regions, and current consensus for the full year is around 17%.
Profit before tax is GBP 38.5 million, down 20% year-on-year, reflecting the lower operating profit, slightly offset by net interest income on our cash. Our effective tax rate is estimated at 28.1%, similar to the rate we forecast at the half year last year. This gives a profit after tax of GBP 27.7 million, down 21% year-on-year. I'm now going to talk about some of the key drivers behind this performance. Despite the more challenging macroeconomic environment than we experienced a year ago, we continued to benefit from our focus on scarce, flexible STEM talent. Contract, which now represents 81% of net fees, saw growth of 3% year-on-year as we delivered strong levels of extensions, with continued demand for tech and good growth in engineering, offset by weaker demand for life sciences.
Permanent represents just 19% of our net fees and was down 19%, of which roughly half can be attributed to the change in our headcount mix, as we have prioritized headcount towards contract, with average permanent headcount down 10%. Now, it's worth noting that the switch from permanent to contract headcount impacts on the timing of fees, as the total fee on a permanent placement is recognized in one go, while contract net fees are recognized over the life of the contract. Contract continues to deliver higher returns over the life of the placement, and with the average length of contracts increasing 20% over the past year, we are confident that our strategic focus on flexible talent will continue to deliver the benefits that significantly outweigh the short-term impacts on permanent fees.
Turning to the net fee margins on the right of the chart, you can see that we've broadly maintained or improved net fee margins. Contract margin, expressed as a percentage of revenue, has been maintained at 21.7%, which is up 1.8 percentage points from pre-COVID levels. Our permanent margin, which is expressed as a percentage of the candidate's starting salary, is up 1.5 percentage points year-on-year, at 26.6%, and up 2.1 percentage points compared to FY 2019. We continue to benefit from the ongoing trend towards flexible working. This slide looks at the analysis of net fees by product type. Our contract business can be split between independent contractors and employed contractors.
The most notable shift over the last few years has been the trend towards the Employed Contractor Model, or ECM, which has grown from 22% of net fees in 2019 to 36% of net fees in the first half of 2023. Under the ECM model, contractors are directly employed by SThree for the duration of the contract, and we're able to offer this more complex service in a compliant way. It continues to be the predominant model in the U.S. and is fast-growing across Europe, which is why the introduction of automation to ECM processes enabling scale is one of the key aspects of the Technology Improvement Programme. Turning now to the regional and skill mix for the period. We have a well-balanced business, both geographically and by skill.
On the two charts you see here, the outer ring represents half year 2023, and the inner ring represents half year 2022. The first chart shows the new regional structure we announced this year, with DACH remaining the largest region in the group, representing 36% of net fees. The second chart shows our strong and unique position in providing STEM skills. Technology continues to be our largest skill, and it represents 49% of net fees. The strength of engineering means it is now the second-largest skill, offsetting the weakness in life sciences and demonstrating the diversity of the mix within our business. Looking to the right, you can see that while DACH net fees were flat year-on-year, growth achieved in the Netherlands region and Middle East and Asia were offset by lower net fees in rest of Europe and the U.S.
You can also see that while both technology and engineering grew year-on-year, this was offset by lower net fees across life sciences, following a global slowdown across that sector. As expected, productivity has come down from the exceptional levels achieved in the first half of last year as headcount has increased and uncertain macroeconomic conditions have impacted net fees. However, pleasingly, the current levels of productivity remain 28% above those achieved before COVID, demonstrating the successful execution of our strategy and our new ways of working. Also, we do plan to deliver sustainable increased levels of productivity as we make our strategic investments in the digital infrastructure. As mentioned earlier, the first half operating profit now includes the Technology Improvement Programme OpEx, with GBP 2.6 million spent in the first half of the year.
Spend on the project started in the second half of last year, so there is no cost in the comparative first half year. Excluding the expenditures so far this year, we achieved an underlying conversion ratio of 19.5%. As well as the OpEx in the first half, we've also incurred a further GBP 2 million of CapEx. We expect a higher run rate of expenditure on the program during the second half of the year as we roll out across the business, and are forecasting spend to be comfortably within the ranges that we provided at the investor briefing in January, as shown here on the right. Whilst we could deliver a higher profit and conversion ratio this year, we are purposely investing on both technology and strategically placed talent to position ourselves for future growth. Turning now to the year-on-year operating profit bridge.
You can see the increase in contract net fees, partly offset by the decline in permanent net fees. People costs are up year-on-year, primarily due to the 5% average increase in headcount compared to the first half of last year, together with inflationary pay increases provided to staff during the year. Also included is the GBP 2.6 million of costs for the Technology Improvement Programme, as already discussed, and GBP 2.8 million of other operating costs, and this leaves profit for the half year at GBP 38.1 million. Looking at our net cash position, we've seen an 11% increase in net cash since the year end, benefiting from the anti-cyclical nature of our working capital, which gets released when growth slows.
We have seen a decrease in trade creditors and accrued income of nearly GBP 29 million. This is partly offset by the decrease in trade creditors, accruals, and provisions of just over GBP 22 million. The closing cash position also reflects the GBP 2 million of CapEx incurred on the Technology Improvement Programme. The purchase of GBP 10 million of shares to ensure that our EBT holds sufficient capacity to deliver on existing long-term incentive plans for our top talent. Moving on to look at our dividends. To reflect our performance and confidence in the business, I'm pleased to confirm that we're maintaining our interim dividend at 5 pence per share. We plan to remain in line with our stated dividend policy for the full year, being cover of 2.5- 3x .
Looking now at the future visibility of our contract business, which constitutes 81% of our net fees. The contract order book represents the value of contracts written up to the contractual end date, assuming that all contracted hours are worked. The book has remained flat as strong extensions have offset slower new placements. Pleasingly, as mentioned earlier, we have seen average contract lengths increase by 20%, and this trend has continued into Q3, with a modest 1% year-on-year increase in the contract order book at the end of June. The order book continues to give us excellent forward visibility compared to permanent-focused staffing businesses, with over 75% of consensus net fees for FY 2023 already recognized or booked. To sum up, we're reporting a resilient trading performance.
With net fees down just 2% in total and contract up 3% against what was an exceptional sector-leading performance in the first half of 2022, we demonstrate the benefit of our strategic focus on STEM and contract. Operating profit remains at near record highs, despite the increased investment in talent and our Technology Improvement Programme. The contract order book continues to give us good visibility of future net fees. We have a strong balance sheet with which to fund our dividends and our strategic investments. With that, I'll hand back to Timo.
Thank you, Andy. We will now turn to look at what we have achieved strategically over the first half. Turning to our operational progress, we have made significant advancements in the line of our strategy as we prepare the business with the right people, structures, and processes to support our next growth evolution. As a reminder, we set out these four strategic pillars so that we can consistently comment on our progress relatively to our places, platform, people, and position. I will now look at the progress we have made against each pillar in turn. The markets and disciplines we operate in are deliberate and strategic, and while there may be variances across these over time, we have chosen our focus areas based on where we see long-term structural opportunities and aligned to the biggest STEM markets.
We concentrate efforts on those niches with the highest demand for STEM specialists and limited supply, where we can generate the highest returns. The focus that we have is demonstrated by the fact that we remain ahead of our peer group in all core geographies on a net fee growth basis versus for FY 2019. In line with our market investment model, we saw scope to make our operating structure and regional presence less complex and more focused. This has included the restructuring of our position in Singapore, Ireland, and Hong Kong, streamlining our focus further. Our conscious focus in the strongest markets has meant that we have been able to successfully maintain net fee margins, which are holding up well. Turning to our platform, our key focus is the rollout of our Technology Improvement Programme.
This is seeing us work with our partner, including Microsoft, to embed state-of-the-art technology across our global organization to systemize and standardize our SThree blueprint , which has been the key ingredient in our success to date. We will shortly hear from Nick Folkes, our CTIO, who will talk us through the progress we are making with our Technology Improvement Programme. First, I would like to point out that this remains key to our ambition of delivering sustainable higher margins. Our underlying conversion ratio, both before and after costs associated with the Technology Improvement Programme, continuously to considerably exceed our pre-COVID performance. While we expect current macroeconomic headwinds to dampen margin progression in the short term, we are confident that we're investing in the right infrastructure to build a world-class organization with a strong platform from which to scale. Over to Nick for a quick update.
Hi, my name is Nick Folkes, I'm the Chief Technology and Information Officer for SThree. We're creating a brand-new digital platform that enshrines a suite of technologies that covers the entire life cycle of the services we provide to our customers. In doing so, we are taking our SThree blueprint and creating its digital twin. We're using a range of both modern and exciting technologies, from artificial intelligence and automation, working with some of our key partners, like Microsoft, to really help our sales consultants become more successful more quickly. First of all, there is a suite of normal benefits you get from any investment program of new technology. By having a modern CRM platform that natively integrates with email and communication platforms, these provide immediate advantage to our organization compared to what we have today.
Of course, these are standard advantages, standard benefits that are available to everybody. Building upon this is our own intellectual property, our own blueprint, and through digitalizing our blueprint, we are creating a co-pilot, if you will, that stands shoulder to shoulder with our sales consultants and our finance colleagues and our placement support professionals through every step of the journey to make sure we're always doing the right thing for our candidates and our clients in the most efficient way. For our candidates, they will receive a new, intuitive platform to manage their entire life with us, whether that be from providing their CV when applying for a role, through to the verification processes we take for our placement support and placement onboarding, all the way through to in-life services for billing and payroll. Our program continues to track to both time and to budget.
Since our last update, we've held a design conference in March, where we took 60 senior leaders from across the business, representing all regions and all functions, where we validated all of the changes that we plan to make as part of our program. Following design week, we've now completed phase one of the development of our digital platform, and it's now undergoing rigorous testing prior to its launch later this year. Our program also includes engagement with several of our key clients in the United States, and they're providing really valuable feedback to us as part of their overall testing program. As our program has progressed, we continue to see evidence that our choice of technologies and partners are an excellent fit for SThree.
As an example, we've been working very closely with Microsoft to research the use of generative AI in our industry, and we now have several use cases that are entering into development on phase two of our platform, which we're genuinely excited about. What is most pleasing, though, is that now we're able to demonstrate the platform. It's creating genuine excitement within our business, and everyone who has seen it is universally impressed with its capabilities and its extensibility. It's already starting to create new waves of innovation, which we're confident will help us further improve the services we provide to our clients and our candidates.
As you have heard, we are very pleased with the progress we are making, and the team is so excited about the next phase of the rollout. With phase one, we're bringing in our technology co-pilot, which will speed up our time to productivity and bring important efficiency gains. What we are also seeing is that the program is already sparking a lot of innovative thinking about how we can leverage new technologies for additional benefits in the future. Turning to our people pillar. Of course, as a people-driven business, we are continuously reflecting on and enhancing our approach to attracting and retaining great people.
Our commitment to creating an environment to support our people, whereby they can fulfill their potential, is fundamental to the success of the business. We are pleased to consistently achieve an eNPS score that places us in the top quartile of the professional service industry. Building on achievements last year, we continue to focus our efforts on initiatives that will unite our global teams and ensure our culture moves forward with the evolution of the business, including initiatives centered on supporting hybrid working, creating a performance culture, and leadership training. We have a number of initiatives planned into H2 and beyond. We look forward to leveraging the collective input from our diverse workforce to activate and embed a new set of company values and evolve our culture to being one that has growth mindset, combined with a high degree of collaboration.
Our thought leadership and our position at the center of STEM has always been fundamental to the success of our business. An example of this is the recent survey, which we published, called How the STEM World Evolves, in which we surveyed 2,300 STEM professionals in our core markets to find out how they're adapting their expectations in a rapidly changing work environment. To pick out two key takeaways, 80% said that choosing personal purpose at work was the main influence driving career choices. 63% said continuing to work flexible is a factor that will affect their career. The full survey is now available on our website. Connected to our purpose and strategy is a strong emphasis on our ESG commitments. We have made good progress against these, with over 106,000 lives positively impacted since December 2019.
132% constant currency growth in clean energy fees since FY 2019, and 33% of leadership boards held by women. For over a decade, we have taken action to reduce our environmental impact. Since setting our first climate science aligned target to reduce carbon emissions by 25% in 2019, we have made considerable progress, reducing our carbon emissions by 44%. Last year, we made the decision to strengthen our ambition and completed the process to set net zero targets verified by the Science Based Targets initiative. Our approach to net zero involves planned, targeted action that is led by data. It incorporates behavior change, operational adaptations, and influence in our end-to-end value chain, as we play a crucial role in providing the STEM skills that will allow the world to invent, innovate, and adapt to tackle climate change.
Our commitment to net zero mirrors our commitment to finding and nurturing the talent needed to build a sustainable future for everyone. To sum up, we're perfectly positioned to help source and place the STEM talent the world needs. We're excited by our Technology Improvement Programme, with the phased geographical rollout set to start in the coming months. We look ahead to the opportunities available to us with optimism. Our specialism in STEM skills and the new ways of working provides a differentiated position to clients and candidates, and a unique business model aligned to our long-term structural drivers. As we enter the second half, market conditions continue to be varied, with inflationary pressures remaining across a number of our markets.
In June, we saw very early indications of easing caution from our customers as extensions remained robust, while the rate of decline of new placements improved versus the prior month. Supported by a robust contractor order book, we continue to invest in our people, infrastructure, and systems to ensure we are well-positioned when the market returns. We are very, very positive, as we've said, about the upcoming future. We believe absolutely in our long-term trends and the position around STEM and flexible talent. The Technology Improvement Programme, guys, we hope we gave you today another good insight, is really well on track, and it's not only bringing us excitement, but also a really great position for the future to drive the business up to more sustainable, higher margins and to overall, what Andy said, maintain or potentially even increase at some point, the productivity levels.
With that, we are well positioned. Thank you all for taking the time, and see you soon. Thank you.