Once again, we have delivered a resilient performance driven by our focus on contract despite the ongoing challenging backdrop. We're pleased to have achieved a performance near historic highs, driven by our unique STEM contract business model and our disciplined investment approach over the recent years. The challenging conditions in the market have extended beyond our industry's expectations. Against this, we're pleased with our sector-leading trading performance, while at the same time executing on our strategy and implementing a sizable transformation of the organization. We continue to believe that our transition to digital-first approach through our Technology Improvement Programme is fundamental to delivering a higher value proposition for SThree. We're excited about the significant enhancements this will bring across our group, positioning us at the forefront of our industry, and are delighted with the progress we are making.
The Technology Improvement Programme remains on track with the U.S. and U.K. live, and the deployment well underway in Germany. I've just come back from the U.S. and have seen firsthand the positive feedback we are receiving. It is great to hear the team speaking about the early benefits it brings to them and their belief in the opportunity going forward. Of course, the wider benefits around efficiencies and scaling will become evident with the time as the program progresses and the platform develops richer functionality. With that, I will now hand over to Andy, who will take us through the numbers.
Thank you very much, Timo, and good morning, everyone. Against a prolonged, challenging backdrop for the sector, the group's net fee remained in line with the previous quarter's performance, down 8% year-on-year on a constant currency basis. Our contract business declined by 8%, with ongoing softness in new placement activity, partially offset by continuing robust extensions. Permanent net fees, down 9%, continued to be impacted by tough market conditions, though with comps now softening, this is the Q2 of sequential year-on-year improvement. So let's take a closer look at what's driving the performance in Q3, starting with the skill mix. Technology, our largest discipline, saw sequential improvement in performance, down 7% year-on-year, benefiting from a lower rate of decline in demand for candidates with tech skills in Germany.
Engineering declined by 7% versus record prior year highs across our major markets, and life sciences declined 14%, primarily driven by the continued global market conditions in that sector. I'll now go through each region in turn and call out any different trends. Within DACH, Germany, our largest country in the region, delivered a sequential improvement. Contract also improved sequentially, with net fees flat year-on-year, benefiting from growth in engineering and a lower rate of decline in demand for technology skills. In the Netherlands region, the Netherlands itself, after delivering an impressive 13 consecutive quarters of growth, was down year-on-year, with contract declining 14%, reflecting lower levels of demand for engineering and technology skills versus record levels in the prior year. For perspective, the net fee performance from the Netherlands this quarter is still 33% higher than pre-COVID levels.
Spain, although currently a small part of the group, saw strong year-on-year growth of 52%, driven by technology and engineering. In the rest of Europe, contract, which represents nearly all of the net fees for the region, declined 13%. The U.K., our largest country in the region, saw contract down 17%, reflecting lower levels of demand across all skill verticals. In the U.S., the sequential improvement this quarter is largely driven by growth in perm against a soft prior year performance. Contract net fees, which now account for around 90% of the U.S. total, delivered a similar rate of decline as seen in Q2, down 13% year-on-year, driven by lower demand for life science and technology roles. Now, as a reminder, our U.S. business is more heavily weighted to life sciences than the rest of the group.
Finally, in the Middle East and Asia, Japan, which represents around two-thirds of the region's net fees this quarter, delivered an impressive performance, reflecting growth across the three main skill verticals, while the UAE declined, driven by reduced demand for roles in engineering and finance, partially offset by continued demand for life science skills. Moving on to headcount. We continue to closely monitor and take the evolving market conditions into account. Period end headcount was down only 1% compared to the end of FY 2023, as we remain focused on managing our business prudently, but also ensuring that we are well-positioned to take advantage when the market improves.
The contract order book of GBP 167 million is down 6% year-on-year, reflecting the protracted soft new placement activity, partially offset by our ongoing strong contract extensions, and this continues to offer sector-leading visibility.
When the FY twenty-four portion of the contract order book is combined with the net fees delivered year to date, we have visibility of close to 90% of full-year market consensus net fees. And finally, we have a robust balance sheet with net cash of GBP 45 million. This is lower than in previous quarter ends, reflecting the timing of certain client payments this quarter, and we expect to return towards normalized levels over the coming months. With that, I'll hand back to Timo.
Thank you, Andy. To summarize, once again, we've delivered a resilient performance this quarter within challenging market conditions. Our contract extensions continue to be robust, demonstrating our clients' need to retain critical STEM skills and flexible talent. Our business model remains a source of strength aligned to the strategic priorities of our clients and providing sizable growth opportunities across all our key markets. None of us can miss the headlines of the macro environment and the impact this has on our customers and our industry. Nevertheless, with careful cost management, we currently expect performance for FY 2024 to be in line with market expectations, as detailed in this statement. As a reminder, our unique contract business model provides resilience.
In practice, this means that when markets turn and new placements activities increases, the recovery in net fees tends to be smoother and from a higher overall level, resulting in a more even through the cycle net fees profile. As an organization, we are always striving to improve. As such, while the market has been challenging, we have continued to invest. We are confident that we are in a position of strength and will emerge a much stronger version of ourselves. And with that, we're now ready for questions. So Tamsin, back to you.
Thank you very much. So to ask your question verbally, click on the Raise Hand button or type your question by clicking on the Q & A button. And we'll go to Tom Callan from Investec. Tom, do you want to unmute yourself?
Sure. Thanks, guys. Morning. I've got two, please. So just firstly, on the technology improvement plan rollout, you know, good to see that the German rollout is progressing well. Wondered if you could just provide an update as to where is next in terms of geographies, as well as any early indications regarding the impact of that program, in terms of productivity, in the U.K. or the U.S., considering you've gone live in both those territories. And then on Japan, you know, clearly a very strong result. If you could just give us a bit more color as to where that outperformance came from geographically and/or regionally. And perhaps your views as well of that particular market in isolation, given it's your sort of largest perm-focused geography. Thanks.
Yeah. I will go for the first one, Andy, you for the second.
Mm-hmm.
Hi, Tom. So first of all, we are on the verge of launching the Netherlands over the coming weeks. So, we are on track with that. Obviously, as we have indicated, the German rollout, we have done IC, we have done perm. We are still working on the ECM bit. I think we have indicated last time that we had a bit of a, yeah, a change, or we had a bit of a delay with one of our suppliers. The good news is we have now a new supplier, and we're very positive on that one, and actually think now that we can really accelerate that work stream. In regard to productivity, you ask, I mean, obviously, UK is still very, very early days.
We are taking some early indications in US, but as we said last time, it takes quite some time. We need quite some long data over a longer period of time to be able to compare, because US, for example, started into the transformation program or into the TIP program in a very different market conditions, which they're in now. So we're looking at some of the underlying factors, and we still need a bit of time to be able to really give you validated numbers and data on that. But overall, it looks positive, and yeah, we're still excited about the outcomes and the benefits we can realize through that. Andy, you want to go take the Japan question?
Yeah, sure. Morning, Tom. You're absolutely right. Really strong performance from our Japanese business. Just to put that in context, it's only 3% of our group, so it is easier to get those rates of growth, but still, exceptional performance, up 60%. It's driven by all of our three main sectors, actually, engineering, life sciences, and tech. In particular, the energy sector is really hot at the moment in Japan continued to drive good growth, so within the engineering sector. Life sciences, while we're seeing that struggle across most of our geographies, actually, it's strong in Japan, and that's driven by activity in big pharma, and there are quite a few new international entrants to the Japanese market and a lot of project-based hiring, so that's helping to boost our performance, and we're capitalizing on that.
Another area that we think supports the overall performance is actually Japanese government incentives. Because of the aging population, there are incentives to continue to fund in growth and R&D. So again, I think there's a higher level of investment in that market than many other markets because of government incentives, which of course we're benefiting from and making sure we've got the right relationships with the clients that are investing their R&D budget. And then finally, on tech, which again, is really strong in Japan, even though many of our regions are impacted by global tech slowdown, we've actually been able to pivot in Japan from historically international clients that have a presence in Japan.
More and more, we've been able to pivot to Japanese companies specifically, which is a harder market for us to crack, but we've really establishing a foothold in the local Japanese market, and tech is an area that local Japanese businesses are still spending on comfortably. So we've been yielding results from a pivot of our business towards Japanese local markets. So lots of reasons. As you pointed out, it's very perm heavy for us. It's a unique offering for us, 'cause most of our business, of course, is contract first, but it, perm is the big market over there. So I think that's part of the reason that has shown some signs of recovery ahead of the contract businesses in other markets.
But I don't know whether we'd drive that continued level of growth going forward, but certainly, we do expect continued growth from here on in from our Japanese market.
Thanks, chaps. Really helpful.
... Thanks, Tom.
Thanks, Tom.
And we'll go to Steve Wolf at Deutsche Bank. Steve, do you want to unmute yourself?
There we go. Morning, all.
That's it
... from me. Firstly, can you just talk a little bit about fee rates at this point in the cycle? And then secondly, the contract extensions, where has this been, you know, more acute than sort of elsewhere, and perhaps what industries? And then thirdly, the good performance in Germany, I was just wondering, you know, obviously, that's slightly at odds with some of the macro indicators. Could you remind me where some of these candidates are going into? So the markets essentially where you've got the strongest demand on that. Thank you.
Andy, you want to grab the first two ones?
Yep.
- and I'll talk about Germany?
Yep, makes sense for you to talk about Germany, doesn't it, yeah.
Yeah.
Firstly, on fee rates, yeah, actually holding up really well. Slightly broader answer to your question, I think probably quite interesting for the audience as well, is the average salaries of the roles that we've placed as well. We've seen benefit from increased salaries. This is just a quarter on quarter, and again, doesn't indicate necessarily wage inflation, but just the roles we happen to have placed. Pleasing to see that our contract roles average salaries are up 6%, and on the perm side are up 5%. Of course, we're benefiting from that, canceling out some of the, obviously, the pressure from volume. Specifically to your question on fee rates, both contract and perm fee rates in terms of net fee margins are actually increased.
So we're on about 21.8 for the quarter on quarter, or as in Q3 versus last Q3, which is up 0.3 percentage points, and perm is up nearly a full percentage, about 28.5. So really strong on underlying salaries of the roles that we place, which hopefully is an indication that we're leveraging higher level relationships in some of our clients. And also, our fee rates are actually modestly up. Can't say that's going to be the position for the full year, but certainly for the quarter, strong net fee performance. And then contract extensions, actually, there's... It's hard to single it out by region or by sector. It's pretty much everywhere.
I mean, it's this obviously, the sectors that we're really seeing it mostly are engineering, 'cause that's where we've seen most of the growth, and we're still showing year-to-date growth in engineering, despite the decline in Q3. So engineering is probably the driving force from a sectoral point of view, but in all regions. But generally, extensions on any of our contracts across all three sectors are pretty strong in all of our sectors, in all of our regions, which of course, is a great indicator for us that they are in short supply and don't want to let them go, and projects generally are not being curtailed early.
Clearly, there's some pressure on new business where clients aren't wanting to start new projects, but those that have started are committing to see them through. So it's pretty much across the board. Timo?
Okay, yeah. Steve, on Germany, yeah, so contract net fees, which account for nearly roughly 80% of the total, improved sequentially, with net fees flat year over year. Overall, the market benefited from growth in engineering and a lower rate of decline in demand for technology skills. Extensions remained solid, finishes lower year on year. Yeah, but obviously, still placements remain still soft, I would call it. It's too early, if that would be next question from someone, to call out any green shoots on this. The end market, I mean, everyone can read media as well, continues to be tough, and order confidence levels, I think, are still low at the moment. So overall, let's see where the next few quarters go.
Yeah, it's obviously a realization also of the softer comps from last year that we can now see the Germany business to slightly more stabilize.
Thanks. Can I just ask? I mean, it's great sort of those product categories, you know, engineering and tech.
Mm-hmm.
What sort of, you know, projects are your people being, you know, put into on the engineering? Is it, you know, energy-related projects, transport-
Yeah
... infrastructure stuff? I'm just trying to get a sense-
Yeah
... where, you know, your business is going-
Yeah
... and what's being more resilient in the market out there. Thanks.
Yeah. So when we talk about engineering, we're not talking about automotive or anything like really mechanical engineering.
Yeah.
That's not a business we're in. Our business is predominantly energy, and two other parts, depends a little bit on the regions we're operating in, but the construction of bigger plants, so because that's quite close to the energy side. So for example, if chemical plants or pharmaceutical plants need to be built or commissioned, maintained, then we staff people into that.
Right.
And the third part, which is not across the whole globe, which is in particular in Germany and some smaller spots in Europe, is also the construction property area, where we are working on big construction sites, infrastructure construction sites, which are obviously. I mean, I'm not talking here about some small roads being built or whatever, but if someone builds an airport or a new harbor, things like that, where we then need these project managers for. So they are kind of the profiles and the areas where we're placing in.
Perfect. That's really helpful.
Yeah.
Thank you very much.
Good.
Thanks, Steve.
Thanks, Steve.
We'll go to James Bayliss at Berenberg. James, do you want to unmute yourself?
Yeah. Morning, guys. Two questions from me, please. To start with, on the balance sheet, can you just give us a bit more color on the moving pieces behind the group's net cash position at the end of Q3? And more widely, whether the ongoing market weakness means we should be thinking about any changes in priorities around short-term capital allocation. And then secondly, if you can just remind us on your overall thinking around the upcoming US election, if it's more generally about resolving some lingering market uncertainty, or if there is any creeping view that one result would be preferential versus the other, given some of the sector exposure you have out there. Thanks.
I mean, let me start very quickly with the second one. Without going into any political details here, but we take obviously election as it would be, and we are keen, positive, confident that whatever election comes, on the last, whatever, 10, 15 years we looked at, every time after that, there were investments going into infrastructure, to go into the country, and the certainty raised. So we do believe that whether it's Harris or Trump, it's gonna be good for the overall recruitment market. So no clear preference from our side. Andy, you wanna take the other one?
Yep. Yeah, fair question on cash, James, given the balance at the end of Q3. Just a little bit of context. I'm sure you're aware of this, but we actually bill to our gross revenue number, so it's actually billings every year are GBP 1.6 billion. So we're invoicing about GBP 140 million in cash every month, just to put it into context. Also, I think we've previously said on these calls, when I've talked about use of cash and the amount of cash we need in the bank, generally, it's very typical to see swings of up to GBP 40 million intra and inter month, which is the reason, one of the reasons we had the RCF to cope for such scenarios.
However, this is quite specific, and as we're rolling out the TIP in each of new markets, there's kind of a short-term impact as clients get used to the new billing processes, and on the whole, very, very significant majority adapt to it pretty quick. It's modern tech. It plugs in well with most systems and processes. This quarter, in particular, is reflective of the timing of certain client payments, a very small number of clients who have unique billing processes, so it doesn't quite work beautifully with our great new systems. We are working really closely with these clients on that transition, so it's creating a bit of volatility as we roll out to each market, but we expect to return to a more normalized cash flow profile over the coming months.
Just to say, and just to be very clear, absolutely zero issue with the client relationship. Very happy with our contractors. Every intention to pay, it's just about getting it through a let's say, a slightly dated process at some of our clients, as we brought out quite modern technology has been a little bit challenging, but no collection issue. It's just a matter of time of how we get over the hump on this small number of clients. About your capital allocation, it doesn't change in any way our thinking about how we allocate our capital. So we expect to be recovered on this shortfall over the coming months.
Perhaps I would just add, I think probably everyone can understand that when we do a change in a country and we roll it out, it goes sometimes over two, three months. And obviously, in these two, three months, we literally need to go to hundreds of clients and move them over to our new processes. And I think in the high majority of cases, that's quite straightforward, but in some cases, it takes a little bit longer. So I think it's a quite heavy undertaking and quite some resource-intense work from our side because we have only very small time spans to really move them over, 'cause we need to get the invoice in order to pay, obviously, our contractors.
Overall, everything in a healthy state, but as Andy indicated, some delays with a few individual clients, which are under control, but we just need a bit more time for.
Perfect. Understood. Thanks, both.
Thanks, James.
Thanks, James.
That's the end of questions. Timo, do you have any closing remarks?
Yeah, obviously, as always. Thank you all once again for joining us this morning. You will hear from us again on the seventeenth of December. We will be issuing our full year trading update. Until then, thank you very much, and speak soon. Bye-bye.
Thank you.
Many thanks, Timo and Andy, and to you all for joining. This is the end of the webinar.