Contract placements drive SThree's growth

It is tough out there for recruitment agencies but SThree is still making headway around the world, except in the UK and Ireland, where profits took a dip.

The group said that in its third quarter (Q3), which runs from May 27th to August 26th, group gross profit was up 6% on a constant currency (CC) basis to £51.3m from £50.2m in the corresponding period of last year. That growth rate represents a slow-down from 9% growth (on a CC basis) seen in the second quarter, and 15% growth in the first.

Gross profit from Permanent placements edged up 2% to £25.6m from £26.0m the year before. Growth from this source remains on a steeply declining trend, as in the second quarter gross profit grew 12% year-on-year (y/y/) on a CC basis, which itself was a slow-down from 16% annual growth seen in the first quarter.

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Offsetting the slow-down in Permanent placings, the Contract side of the business grew gross profit by 10% to £25.6m from £24.3m the year before, an improvement on the 7% y/y improvement in the second quarter, but lower than the 13% growth seen in the first quarter.

The split between Permanent and Contract profits is now 50/50, versus a 52/48 split in the fiscal third quarter of 2011.

"Contract performed encouragingly in the period, with strong growth in gross profit in Europe (+12%) and Rest of World (+94%), offsetting a small decline of 2% in UK. The number of contract runners at the end of Q3 was up 7% versus the start of 2012. This compares to an increase of 3% at the end of Q3 2011, indicating a stronger seasonal recovery and run rate into the final quarter of this year," the company said.

Gross profit in the UK & Ireland (UK&I) declined 6% to £17.7m from £18.9m the year before. Other parts of the world picked up the slack, with gross profit up 13% to £33.6m from £31.3m a year earlier.

The depressed state of the banking and financial services industry is having an effect on demand for information and communications technology (ICT) professionals, an area in which SThree specialises.

Gross profit from ICT placements slipped 8% to £26.9m from £30.5m in the corresponding quarter of 2011. Non-ICT gross profit shot up 27% to £24.4m from £19.7m the year before.

Group sales headcount at 26th August 2012 was down 6% versus the year-end, and level y/y. UK sales headcount was down 16% versus year-end and down 17% y/y. Non-UK sales headcount was level versus year-end and up 10% y/y. Average sales headcount in the quarter was up 4% y/y.

The permanent deal pipeline at the period end was broadly level y/y, as it was at the end of the second quarter, but was sequentially up 6% versus the second quarter period-end.

The group had net cash of around £17m at the end of the reporting period.

Russell Clements, SThree's Chief Executive, described third quarter trading as satisfactory, given the difficult macro-economic back-drop, and he was especially chuffed with the performance of the Contract division, especially as it now makes up half of the group's business.

"Demand in sectors such as Energy & Resources and Pharmaceuticals & Biotechnology remained strong and these businesses continued to increase their contribution to the group result," Clements said.

"Our balance sheet remains strong, and we are a cash generative, debt-free business. This strength allows us to continue to make selective investments for the future whilst remaining committed to maintaining our strong track record in terms of our dividend," Clements added.

Shares in SThree rose 6p to 277.5p in the first hour of trading on the morning of the trading update.

JH