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UK – SThree net fees up 9% in constant currency, international growth offsets UK&I slowdown

14 June 2019

International recruitment firm, SThree (STHR: LSE) published a trading update for the six months ended 31 May 2019 with group net fees up 9% in constant currency when compared to the same period last year. 

The company said its performance in the first half of the year was in line with management expectations. Group net fees were consistent across both Q1 and Q2.

SThree reported group gross profit for H1 2019 was as follows.

(£ million) H1 2019 H1 2018 Change in Constant Currency
Contract 121.1 106.7 12%
Permanent 41.9 41.7 -1%
Group Total 163.0 148.4 11%

All year-on-year financial growth reported below is expressed in constant currency.

Contract fees represented 74% of group net fees in H1 2019, up from 72% in H1 2018.

Continental Europe and USA combined now represent 80% of group contract net fees (H1 2018: 76%). This was in line with the company’s strategy to focus on the world's biggest STEM contract recruitment markets.

Within Contract, all regions outside of UK & Ireland reported double digit growth with Continental Europe up 16%, USA up 22% and APAC & MENA up 15%.

Permanent net fees were down 1% with UK & Ireland net fees declining, reflecting UK restructuring. The USA saw net fees decline by 10%, reflecting leadership and strategic changes made in H1 2018. The group reported strong growth in DACH (Germany, Austria and Switzerland), the largest permanent region, up 9%. Japan was up 49%.

During the period, SThree appointed Mark Dorman as CEO, who took over from previous CEO Gary Elden on 18 March 2019.

Mark Dorman commented, "In what is my first trading update with the group, I am pleased with the performance we are reporting today, delivered by a strong and talented team. The benefits of our model and the structural drivers in our markets are seen throughout our results with our key performance indicators demonstrating the continued success of our sector and regional strategic focus. We are particularly pleased to report double digit growth in net fees across three of our four regions and have plans in place to drive growth across them all.”

Net Fee Income by Region

(£ million) H1 2019 H1 2018 Change in Constant Currency
UK & Ireland 23.8 26.5 -9%
Continental Europe 93.9 83.9 13%
USA 35.5 29.5 13%
APAC and Middle East 9.8 8.5 13%

All regions delivered double digit growth, with the exception of UK&I which, while net fees were down 9%, the group added that its results are stabilising.

The company added that Continental Europe benefitted from an extra working day in Q2 and H1 2019.

Net Fee Income by Sector

(£ million) H1 2019 H1 2018 Change in Constant Currency
ICT 73.1 66.5 11%
Banking and Finance 18.8 20.1 -9%
Energy 18.4 14.0 27%
Engineering 16.3 14.3 14%
Life Sciences 31.5 30.6 6%
Other 4.9 2.9 4%

"The scale of the STEM opportunity is both enormous and growing across our key regions and we are uniquely positioned to benefit from this. With this backdrop, the structural market drivers for STEM recruitment services remain very attractive and we continue to invest in high performing teams to drive growth, in line with our vision to be the number one STEM talent provider in the best STEM markets,” Dorman said.

"Our deliberate focus on contract, a natural function of our STEM specialism, and the continued strength of our performance across key regions and sectors in our well diversified portfolio, provides resilience in today's more uncertain market conditions, while also delivering strong growth over the medium term. Following the encouraging start to the year, expectations for the full year remain unchanged,” Dorman said.

As of last trade, SThree traded at £284.90, up 3.04% on the day and16.29% above the 52 week low of 245.00 set on 28 December 2018. Based on its current share price the company has a market value of £362.09 million.


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