UK recruiter SThree PLC (LON:STHR) reported a drop in full year pre-tax profit as restructuring costs rose and as employers took on fewer permanent staff amid Brexit uncertainty.
Profit before tax in the year ended 30 November 2017 fell 3%, at constant exchange rates, to £37.7mln.
READ: SThree sees full year profit ahead of market expectations, driven by US and Europe
Restructuring charges came to £6.7mln compared to £3.5mln the previous year.
Revenue edged up 9% to £1.1bn as SThree continued to shift its attention to contract recruitment and international markets amid tough UK trading and a weak performance in the permanent hiring business.
Gross profit increased 4% to £287.7mln as growth in the US and Continental Europe offset a decline in the UK and Ireland region.
“Pleasing performances in the USA and Continental Europe, particularly from our market-leading businesses in the Netherlands and Germany, were key to this result,” said chief executive Gary Elden.
“With 81% of our business now generated outside the UK and 71% of our gross profit generated by our more resilient contract business, our business profile has changed significantly over recent years.”
Brexit uncertainty
The company has been focusing on regions outside the UK as uncertainty surrounding Brexit hurt business sentiment.
Gross profit in UK permanent recruitment fell by a worse-than-expected 22% despite a major overhaul of the business in 2016 while gross profit in UK contract recruitment dropped 11%.
For the group overall, gross profit in permanent recruitment fell 8% while contract recruitment rose 10%.
In response, the company reduced its permanent headcount in certain markets in an effort to improve profitability.
'Well-positioned' for growth in 2018
Elden said the company had a strong final quarter and expects this performance to continue into 2018.
“After two years of turbulent political, market and economic conditions, we enter 2018 in good shape, with a clear vision to be the number one STEM (science, technology, engineering and mathematics) talent provider in the best STEM markets,” he said.
"Looking ahead to 2018, the momentum of our contract business and the strength of our performances in the USA and Continental Europe leave us well-positioned for further growth."
The company maintained its final dividend at 9.3p each, bringing the total for the year to 14p and representing a yield of 4%.
Net cash at the end of the period stood at £5.6mln, down from £10mln in 2016, due to increased cash used for working capital.
Liberum raises target price on SThree
Liberum left its rating at ‘buy’ and raised its target price to 425p from 400p, saying the shares offer the most attractive risk-reward profile in the sector.
The broker said the key takeaway from the results was that the momentum delivered by the business in the fourth quarter has continued into the first weeks of 2018.
“Although too early to drive material forecasts, this combined with historic investment should leave the company well-placed in FY18,” the broker said.
“We also see SThree as being well-positioned longer term, given its exposure to STEM markets and the more resilient contract business."
Shares dipped 0.82% to 368.95p in morning trading.