SThree holds FY26 guidance as improving orders meet weaker profits

SThree's half-year numbers contain two quite different stories. Current profits are under pressure, particularly because of weaker European hiring and restructuring costs. However, new business trends improved during the period, the contractor order book returned to growth and management maintained full-year guidance.

The global STEM workforce consultancy reported a 7% decline in net fees to £147.7 million for the six months ended 31 May 2026. Profit before tax fell much faster, dropping 73% on a reported basis to £2.7 million.

STEM refers to science, technology, engineering and mathematics roles. SThree specialises in supplying permanent and contract workers with these skills.

SThree's key half-year figures

Metric	H1 FY26	H1 FY25	Reported change
Revenue	£598.8 million	£648.8 million	-8%
Net fees	£147.7 million	£159.1 million	-7%
Operating profit	£3.4 million	£10.0 million	-65%
Profit before tax	£2.7 million	£10.1 million	-73%
Basic earnings per share	2.1p	5.6p	-63%
Interim dividend per share	5.1p	5.1p	No change
Net cash	£43.0 million	£47.8 million	-10%

The operating profit conversion ratio, which shows how much of net fees becomes operating profit, fell from 6.3% to 2.3%. That is a clear indication of the operational gearing within recruitment businesses, where a relatively modest decline in fees can have a much larger effect on profit.

There is an important adjustment, though. SThree incurred £6.4 million of non-recurring costs, primarily linked to its cost optimisation programme. Excluding material non-recurring costs, operating profit was £9.8 million rather than the reported £3.4 million.

That does not erase the underlying trading weakness, but it does help explain why the reported profit decline was so severe.

The contractor order book is the key positive

Contract recruitment generated 85% of group net fees, making it the core of SThree's business. Contract net fees declined 8% year-on-year, although the trend improved from a 10% decline in the first quarter to a 6% decline in the second.

Extensions remained resilient, while new business activity was stable year-on-year and improved quarter-on-quarter. Six of SThree's 11 Contract countries delivered growth despite a mid-teens reduction in group sales headcount.

Most encouragingly, the contractor order book increased 3% to £157.2 million. This was its first period of growth since the first quarter of FY23 and represents approximately five months of net fees.

An order book is not the same thing as recognised revenue or profit. SThree calculates it as the expected net fees through to contractors' agreed end dates, assuming all contracted hours are worked. Nevertheless, it gives investors useful forward visibility and suggests that the direction of travel may be improving.

Permanent recruitment, which accounted for the remaining 15% of net fees, declined 5%. Its rate of decline moderated, helped by strong growth in Japan and an improved second quarter in the USA.

The USA and Japan are doing the heavy lifting

Performance varied considerably by geography.

The USA delivered 12% net fee growth on a constant-currency basis, including 15% growth during the second quarter. Contract net fees rose 14%, supported by demand for Engineering and Technology skills connected to power generation and the AI value chain.

Japan was another standout, with net fees up 36%. SThree reported sustained demand across all skill areas, particularly Technology roles linked to digital transformation, AI enablement and data security.

Europe was much weaker. Germany's net fees declined 14%, while the Netherlands fell 24% and the UK dropped 19%. Across the broader reporting regions, DACH declined 15%, Netherlands including Spain fell 19%, and Rest of Europe decreased 14%.

Spain provided a brighter spot within Europe, growing net fees by 18%, while Belgium was flat.

By skill category, Engineering was the most resilient, declining just 1%. Life Sciences fell 8%, while Technology, SThree's largest skill area at 43% of group net fees, declined 14%.

This leaves the group dependent on growth markets offsetting substantial weakness elsewhere. The three largest countries contribute 72% of net fees, so results can move meaningfully when Germany, the USA or the Netherlands changes direction.

Technology gains are becoming measurable

Management said the Technology Improvement Programme is now producing tangible benefits following completion of the global rollout last year.

Compared with H1 FY23, client meetings per consultant increased 69%, high-quality jobs per consultant rose 41%, time-to-placement improved by one day and Contract placements per consultant increased 6%.

The group's wider productivity measure rose 9% year-on-year, as net fees declined 7% against a 15% reduction in average headcount. This follows a 5% productivity improvement in the second half of FY25.

These figures matter because SThree's strategy relies on doing more business with a leaner cost base. Its single cloud-based platform and centralised shared services are intended to reduce duplication, improve data quality and allow future growth without rebuilding support functions country by country.

The challenge is turning improved activity measures into higher net fees and margins. For now, the conversion ratio remains low and the cost programme is still being implemented.

Cash generation deserves attention

Cash generated from operations fell to £3.3 million from £21.7 million, reflecting lower earnings and adverse working-capital movements. After tax payments, net cash generated from operating activities was just £0.4 million.

Net cash declined from £68.0 million at the FY25 year-end to £43.0 million. SThree also spent £6.0 million repurchasing shares for cancellation during the half and had bought back £8.8 million by 20 July 2026 under its programme of up to £20.0 million.

The balance sheet still provides flexibility. Total accessible liquidity stood at £98.0 million, including net cash, a £50.0 million undrawn revolving credit facility and a £5.0 million undrawn overdraft.

One detail to note is that lenders granted a waiver until 13 October 2026 after guarantors provided 76% of EBITDA at the prior testing date, below the facility's 80% requirement. SThree said additional guarantors may be added to ensure compliance.

Dividend held despite lower earnings

The interim dividend was maintained at 5.1p per share, costing £6.4 million. It is due to be paid on 11 December 2026 to shareholders registered on 13 November.

The board acknowledged that this was the second consecutive departure from its targeted dividend cover policy of 2.5 to 3.0 times earnings per share through the cycle. The unchanged payout is supported by the balance sheet rather than current half-year earnings.

That demonstrates confidence and a commitment to shareholder returns, but investors should watch the relationship between dividends, buybacks, cash generation and profitability if softer conditions persist.

What investors should watch in the second half

SThree reiterated guidance for FY26 profit before tax of approximately £10 million. The cost optimisation programme remains on track, with benefits weighted towards the second half.

The investment case now rests on whether better new business momentum and the growing contractor order book translate into improved net fees, while savings lift profitability. Continued growth in the USA and Japan would help, but recovery in Germany and the Netherlands could be more significant given their weight within the group.

For now, SThree appears to be operating more efficiently in a difficult market, but the sharp decline in reported profit and weaker cash generation show that the recovery is not yet complete. The next scheduled update is the Q3 FY26 trading statement on 22 September 2026.