SThree bucks pricing trends

(By Anthony Miller – Monday 20th July 2009 9:00am). It was as horrible as they thought it would be. Despite muted signs of market stability (see SThree sees UK ICT recruitment slump near bottom), leading UK ITSA (IT staff agency) SThree saw earnings almost disappear in its first half to 31st May (see here). This was in part due to a £8.5m restructuring charge as, unusually for SThree, it had to resort to layoffs to cut staff, rather let than it’s ‘Darwinian’ compensation policy (see SThree – survival of the fittest) take its natural course.

That said, SThree managed to increase average pricing when most others are caving to customer pressure. Contractor gross margins improved 110bps to 22.5% (this is just dreamland for most recruitment firms, by the way) even though there were 22% fewer contactors at clients. Average permanent placement fees rose nearly 11% to £11.8k despite a 34% drop in placements. Overall, gross margins dipped from 35% to 33% with gross profit now firmly skewed 58%/42% in favour of SThree’s contractor business.

But what is really pushing SThree’s business forwards in these troubled times is its diversification into non-ICT disciplines and non-UK markets. Gross profits in SThree’s non-ICT segments (including accountancy/finance, banking, engineering, oil/gas, pharma and others) grew 9% to £24m, and is now 25% of the total. GP in non-UK businesses grew 20% to £51m, whereas UK GP fell 29% to £43m, i.e. for the first time SThree now earns more profit overseas than in the UK. Given its roots as a solely UK-based ITSA, it really shows how well CEO Russell Clements has both steered and managed the business.

But the immediate outlook still looks grim. Even SThree’s non-UK markets saw conditions deteriorate, and despite signs of stability in the UK, Clements said that “the data points are relatively limited” with no evidence as yet that the bottom has been reached. Firm hands are still required on the tiller!