SThree Q3 Earnings Call Highlights

Key Points

• SThree raised its full-year profit-before-tax guidance to at least £12 million from approximately £10 million, supported by working-capital efficiencies, productivity gains and cost actions.
• Third-quarter net-fee declines moderated to 2% year over year, with contract fees broadly flat, contract new-business activity improving and the contractor order book up 5%, providing roughly five months of future fee visibility.
• The U.S. led the recovery with net fees up 11%, while life sciences returned to growth at 8%; European conditions improved overall but remained mixed, particularly in Germany.

SThree LON: STEM said its third-quarter performance improved sequentially as contract new-business activity increased, productivity rose and recovery signals broadened across more markets. The STEM-focused recruitment company raised its full-year profit-before-tax expectation to at least £12 million, from previous guidance of about £10 million.

Interim Chief Financial Officer Damian Fehrenberg said group net fees declined 2% year over year in the third quarter, improving from declines of 6% in the second quarter and 8% in the first quarter. Contract net fees were broadly flat with the prior year, while permanent recruitment fees fell 8%.

“The direction of travel continues to improve,” Fehrenberg said, citing stronger demand trends, sustained productivity gains and a broader recovery across the business. He said market conditions remained mixed, though declines had moderated consistently during the financial year.

Contract activity and order book strengthen

Contract recruitment, which accounts for approximately 84% of group net fees, was a central area of resilience during the quarter. Contract new-business activity grew year over year and improved from the preceding quarter, with six of 11 contract markets reporting year-over-year growth, including four European countries.

Fehrenberg noted that contract fees are recognized over the life of an assignment, rather than in full when a candidate begins work as is the case in permanent recruitment. As a result, reported contract net fees can lag new placement activity, but the model also provides greater resilience during downturns.

The company’s contractor order book increased 5% year over year and represented roughly five months of future net fees. Management said the order book reflected improved new-business momentum and provided stronger visibility into future performance.

U.S. growth offsets mixed European conditions

The U.S. was the company’s strongest major market in the quarter, with net fees rising 11% year over year. Fehrenberg said demand was healthy in life sciences and technology, supported by the group’s focus on attractive end markets. U.S. engineering was broadly stable against a record prior-year comparison.

Europe remained more challenging, although trends improved. Germany continued to face difficult market conditions, but its rate of decline moderated. The German permanent recruitment business had not yet reflected the broader improvement in trading momentum, Fehrenberg said.

The Netherlands returned to growth against softer comparatives, while the U.K. recorded a further moderation in its rate of decline. “The U.S.A. continues to lead the recovery, whilst Europe is becoming less of a headwind,” Fehrenberg said.

Japan declined against a particularly strong prior-year comparison following five consecutive quarters of growth. However, management said demand indicators in Japan remained encouraging and characterized the country as a strategically important long-term growth market.

Life sciences returns to growth

By skills vertical, life sciences grew 8% year over year, marking its return to growth after four years. The performance was driven by strong U.S. demand, where the company has its largest life sciences market.

• Life sciences: Net fees increased 8% year over year.
• Engineering: Net fees declined 2%, with demand growth in Germany and the Netherlands and a resilient U.S. result offset by declines in Japan and several smaller markets.
• Technology: Net fees declined 6%, as growth in the U.S., the Netherlands and several smaller European countries only partly offset softer demand elsewhere.

The company said clients continued to prioritize critical STEM skills and invest in areas tied to their long-term strategic objectives.

Productivity gains and cost actions support outlook

Period-end headcount was 7% lower than at the end of the previous financial year, reflecting selective hiring, management of natural attrition and the company’s cost-optimization program. Meanwhile, SThree’s historical productivity measure rose 9% year over year in the third quarter, meaning the group generated more net fees per employee.

Fehrenberg said the productivity performance supported management’s view that technology investments and operating-model changes were producing benefits. The company operates on a single standardized end-to-end platform, which management said was improving efficiency, execution quality and client delivery.

The FY 2026 cost-optimization program remained on track. Costs associated with the program were weighted toward the first half, while benefits were expected to be weighted toward the second half.

SThree ended August with net cash of £36 million and had purchased £10.5 million of shares under its buyback program as of the day before the update. The higher profit outlook primarily reflected working-capital efficiencies and other one-off benefits that the company does not expect to recur.

Management said its strategic investments and transformation initiatives had established a stronger platform for scalable growth, including the use of artificial intelligence, as the company seeks to return to growth.

About SThree (LON:STEM)

SThree plc brings skilled people together to build the future. We are the global STEM workforce consultancy, placing highly skilled, STEM specialist workers in the industries where they are needed most. We advise businesses, build expert teams, and deliver project solutions for our clients. With 40 years of experience in pure-play STEM and a global team with local expertise across 11 countries, we cover high-demand skills across Engineering, Life Sciences and Technology roles. We provide permanent and flexible contract talent to a diverse base of around 6,000 clients.

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