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Recruitment firm SThree posts gross profit growth despite Brexit-driven drop in UK unit

SThree's departing chief executive Gary Elden said the recruiter remains "confident in achieving good growth in the current year"
SThree specialises in recruitment for science, technology, engineering and mathematics sectors

Brexit uncertainty hurt the UK division of recruiter SThree PLC (LON:STHR) in the first quarter but growth across the rest of its markets led to a 9% increase in total gross profit.

The company, which specialises in recruitment for science, technology, engineering and mathematics (STEM) sectors, said gross profit for the quarter ended February 28 rose to £78.1mln from £70.3mln a year earlier.

READ: SThree hikes dividend for first time in seven years as 2018 profit beats expectations

The UK and Ireland business saw gross profit drop 7% to £11.7mln on weaker business confidence as MPs came no closer to agreeing on the course of the UK’s departure from the European Union.

Brexit uncertainty 

The UK was due to leave the bloc on March 29 but MPs voted last night to extend Brexit after turning down Theresa May’s plan for a second time.  

If MPs back May’s deal in a vote next week, Brexit could be delayed by three months but if they don’t, the prime minister will seek a longer extension.

By dragging out Brexit, this creates further uncertainty for the UK jobs market.

However, about 85% of SThree’s gross profit is generated outside the UK and Ireland with Continental Europe its biggest market.

Continental Europe and US job markets strongest

Gross profit in Continental Europe rose 12% to £45.5mln in the first quarter, driven by a strong performance in the Benelux region comprising Belgium, Netherlands and Luxembourg as well as the DACH countries of Germany, Austria and Switzerland.

US gross profit increased 17% to £16.4mln while the Asia Pacific and the Middle East division delivered growth of 5% to £4.5mln.

In terms of sectors, the ICT, engineering and energy were the key drivers of growth, offsetting a decline in banking and finance.

Contract job placements rose 12% to £57.6mln and permanent was up 1% to £20.5mln.

"We have made an encouraging start to the year, with robust group gross profit growth in what is our seasonally least significant quarter,” said chief executive Gary Elden.

Elden is stepping down as chief executive on Monday and will be replaced by Mark Dorman who was previously president of higher education, international & professional for McGraw Hill Education.

He will remain with the company to oversee the transition until the annual general meeting on April 24.

SThree confident of further growth 

"Looking ahead, SThree will continue to invest in our teams to drive growth, consistent with our vision to be the number one STEM talent provider in the best STEM markets,” Elden said.

“Our focus on contract and the continued strength of our performance across key regions and sectors provides resilience in today's more turbulent market conditions.

“Set against this context, we remain confident in achieving good growth in the current year."

Shares rose 2.7% to 300p in morning trading. 

Liberum maintained a 'buy' rating and target price of 475p, saying the first quarter was "marginally better than we had hoped" as growth in Continental Europe continued to exceed its expectations.

"Whilst the UK performance was weaker, the strength in the group's core STEM markets suggests that the outlook for FY19 remains encouraging," it said. 

We continue to see SThree as well positioned to capitalise on long term trends within the professional recruitment space, given its contract bias and geographic exposures."

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