The weakness in the propensity for European firms to hire permanent staff appears to be worsening. UK-headquartered international recruitment group SThree saw gross profit from its permanent recruitment activates slide 15% to £43.m in H1 (to 26th May), implying an even steeper decline in Q2 than in Q1 (see SThree makes the best of a tough Q1). It also seems contractor hire was not so buoyant, with GP only 3% higher at £50.6m, compared to a 6% rise in Q1.
Net net, group GP fell by 6%, twice the rate in Q1 alone. SThree's UK & Ireland business was not as hard hard hit as the Continent, with permanent recruitment GP down 24% compared to -27% in Benelux and a whopping 41% decline in France. In contrast, rival recruitment giant, Adecco, reported a 'bottoming out' in Europe (see here).
In an 'interesting;' change of strategy, CEO Gary Elden said that SThree will now "prioritise lifetime contract value over upfront margin" in larger blue-chip clients. SThree has traditionally shied away from margin-draining 'preferred supplier agreements' in favour of canny pricing in 'spot' markets. Elden's pronouncement seems to signal they are now going for headline growth over margin, on the basis that this will drive absolute profit higher. The theory is well understood; the practice does not always match the theory.
Nonetheless, SThree has proven itself to be very resilient in previous downturns, though this is the first that Elden has had to face as CEO.