Specialist international recruitment firm SThree (STHR: LSE) reported today third quarter net fees fell by 7% in constant currency (CC) when compared to the same period a year ago.

In its trading update for the third quarter ended 31 August 2023, the group cited a strong comparative period and ongoing global macroeconomic weakness.

Excluding the restructured businesses in Singapore, Hong Kong, and Ireland, the movement in group net fees improved from -6% year-on-year in Q2 to -5% year-on-year in Q3. The company previously announced the restructuring due to continued underperformance.

Contract net fees were flat (CC) in Q3, representing 84% of group net fees (FY22 Q3: 77%). Contractor order book remained flat over the year, with continued strong contract extensions.

Permanent net fees (representing 16% of the group) were down 31% (CC) over the year, reflecting both market conditions and the company’s strategic investment towards Contract in specific markets.

The company also announced it is trading in line with market expectations for the full year.

Timo Lehne, Chief Executive, said, "We continue to deliver a resilient performance, underpinned by the group's strategic focus on Contract. While the wider environment remains uncertain, we are encouraged by our sequentially improving new placement performance and strong contract extensions, demonstrating our clients' sustained demand for critical STEM skills.”

Gross profit by country

All growth rates announced below are in constant currency and year-on-year unless otherwise stated.

Within DACH, Germany, the largest country in the region, saw contract down 3% over the year, with overall net fees down 6%, driven by engineering (up 22%), with increased demand for construction roles. However, this was offset by technology and life sciences, down 10% and 14% respectively, year-on-year.

In the Netherlands (including Spain) region, the group noted strong growth in contract, up 10%, partially offset by permanent, down 9%. The Netherlands, which represents 94% of the region, saw contract up 7% with overall net fee growth of 5% driven by engineering and technology growth. Spain saw growth of 107%, driven by technology.

In the Rest of Europe, contract, which represents 97% of net fees for the region, grew 4% over the year. The UK, the largest country in the region, saw contract up 1%, with overall net fees down 4%. Engineering was up 17% as demand increased for roles within project and construction management and mechanical engineering. However, this was offset by declines in both technology (down 5%) and life sciences (down 26%).

In the USA, the company saw a strategic shift toward contract in the region, which now represents 91% of net fees, with contract net fees down 7%. Life sciences was down 18%, in line with the market conditions for that sector. This was partly offset by engineering, up 16% over the year.

Middle East and Asia saw net fees decline 14% year-on-year. On a like-for-like basis (excluding the restructured businesses in Singapore and Hong Kong), net fees were up 5% over the year. Japan, which represents 48% of the region, was down 4%, driven by technology. The group noted a solid performance in UAE, with net fees up 18%, driven by engineering.

“Our Technology Improvement Programme, key to driving both scale and higher margins over the mid-to-long term, and to delivering a differentiated and higher value proposition within the market, continues to progress on track and on budget,” Lehne said. “I am delighted that the first phase of the rollout in Houston (Texas) is now complete, which is a significant milestone for the group. We are incredibly excited about the progress that has been made so far and continue to believe that this will be a key strategic step forward for our business.”

“Our long-term opportunity is clear, underpinned by structural megatrends driving the acute need for scarce STEM talent,” Lehne added. “While we remain mindful of the macro-economic uncertainty across global markets, with all lead indicators of the group's performance monitored closely, we look ahead to the opportunities facing us with optimism. Our specialism in STEM skills and new ways of working provides a unique offering to clients and candidates. Supported by a resilient business model and strong financial position, we are trading in line with market expectations for the full year, and we remain well positioned to source and place the best STEM talent the world needs."

SThree shares last traded at £377.28, up 5.09% on the day and 16.08% above the 52-week low of £325.00 set on 10 July 2023. The company has a market cap of £482.94 million.