Good morning everyone, and welcome to SThree's Q1 trading update of FY 2026. I'm joined by our CFO, Andy Beech, and today we will give you an overview of our Q1 performance. As you may have seen, we have also made an announcement regarding Andy's position at SThree, which we will cover shortly. After our update, we will be happy to take questions. FY 2026 has started in line with our expectations with Q1 consistent with the outlook we shared at our full year results. We're seeing continued stabilization across the business with ongoing momentum in the USA and Japan, and a significant improvement in the year-on-year rate of decline in group net fees. This reflects the conclusion of an important contract renewal period for us, alongside encouraging new business performance that is broadly consistent year-on-year.
Significantly, this performance highlights much higher productivity and improved operational efficiency. We have delivered this output with a much lower headcount. What we see is that our teams are both busier with higher interview activity, both important, but importantly, much more effective, delivering more placements per head. We've talked for three years about the importance of productivity alongside the implementation of our TIP, and it is encouraging to see this coming through with our strongest Q1 since FY 2022. Our performance as well has been achieved against a backdrop of ongoing macroeconomic volatility, including geopolitical uncertainty and rapid technological change, which continues to influence business priorities and investment decisions in our end markets.
However, what we are seeing is that as workforce needs evolve in response to these factors, more organizations are turning to partners who can help manage increasing complexity, a trend that's only accelerating with the growth of AI. That plays directly to our strengths and is reflected in the resilience of the employed contractor model as organizations shift away from purely transactional hiring towards a more scalable end-to-end workforce solution. We have a clear view of what our operating model needs to be, and we are well underway in evolving it, ready for the new world of workforce consulting. At the same time, our TIP has created a highly scalable operating platform built on a unified digital and data backbone with modern tech-ready workflows already deployed across the business.
This platform enables us to integrate the latest advanced technologies, including agentic AI, and we expect this to enhance candidate quality, increase delivery velocity, and improve overall efficiency, strengthening the value proposition we offer to clients. Taken together, this means we are uniquely positioned for the new world of work. In Europe alone, Eurostat data shows that just under half of enterprises have yet to migrate to cloud infrastructure, creating a significant barrier to scale and a clear opportunity for us to support clients through the digital transformation journeys with our workforce solutions. Before I hand over to Andy, after five years and a lot of hard work, we have announced this morning that he is stepping down.
I would really like to take a moment to thank Andy for his contribution and significant commitment, setting up an exceptional finance function, delivering the TIP on time and on budget, and leaving us at a point where our performance has stabilized, and we're confident of delivering our full year expectations. We're looking forward to Andy's continued support over the coming months to ensure a smooth transition as we carry out a thorough process to identify his successor. With that, I will hand over to Andy.
Well, thanks for the kind words, Timo. The past five years have been incredibly rewarding for me, and although we faced a prolonged challenging backdrop, I think we definitely used this period wisely to strengthen the business and lay the foundations for the future. After an orderly handover, I will be leaving SThree confident that the company is stable, well-positioned, and ready to seize the opportunities that lie ahead. Now let's get on with the Q1 numbers. Group net fees were down 8% year-on-year on a constant currency basis, reflecting continued stabilization and trading conditions remaining largely consistent with the prior quarter. Our contract business, which represents 83% of group net fees, declined by 10%. New placement activity was broadly stable year-on-year and in line with our expectations.
As Timo mentioned, in the context of a mid-teens percentage reduction in sales headcount, this underlines the meaningful improvement in productivity that we are seeing, supported by our new technology platform. Additionally, the first quarter included our key contract renewal period, and I'm pleased to say that extensions continued to demonstrate resilience and also delivered in line with our expectations. Notably, contract net fees in the U.S. were up 13%, its third consecutive quarter of growth, partially offsetting a weaker performance in the Netherlands. Our permanent net fees were flat, marking our strongest quarterly year-on-year performance in over three years, supported by particularly strong trading from Japan, our second-largest permanent business in the group. Let's take a closer look at what's driven trading in the quarter, starting with the skill mix.
Engineering, our second-largest skill, declined by 5%, although the energy segment continued to grow, reflecting strong demand for roles in the U.S. Life sciences, our third-largest skill, was down 10%. A strong growth in Japan only partially offset reduced demand across our other major markets. Technology, our largest discipline, declined by 14%, reflecting soft demand for roles, particularly in the Netherlands and Germany, which contributes around 60% of net fees. I'll now go through our top five countries in turn and call out some of the key trends that we're seeing. In Germany, the moderation in the rate of decline year-on-year relative to Q4 was supported by a smaller year-on-year decline in life sciences and stronger demand for banking and finance roles.
For the period, contract was down 11%, primarily reflecting lower demand for tech skills, with a similar trend observed in permanent. In the U.S., contract, which accounts for nearly 90% of net fees, delivered another strong performance, supported by demand across all of the skill verticals, but especially for energy and technology roles. This performance was partially offset by softer trading in permanent as demand moderated across most skill verticals, with the exception of our other category where we've seen robust demand for Banking & Finance roles. In the Netherlands, the market remains challenging, with trading marginally softer than in Q4 due to the modest impact of new regulation introduced in January. In addition, the performance also reflects the fact that the Netherlands sustained growth for longer than our other larger markets, resulting in a continuation of strong prior comparatives.
Contract, which accounts for over 90% of net fees, declined 29%, reflecting reduced demand for technology and engineering roles. In the UK, we saw a 9 percentage point moderation in the rate of decline year-on-year relative to Q4, supported by smaller year-on-year declines across most skills. Contract, which represents the majority of net fees, was down 21% in the period, primarily driven by lower demand for technology roles. Finally, Japan, which delivered its fourth consecutive quarter of growth and saw strong demand across all of the skill verticals, but especially for technology roles. Turning to headcount. At the end of February, group headcount was down 4% compared to the end of FY 2025. This reflects careful management of natural churn, a highly selective approach to hiring, and the realization of early cost optimization actions.
On the latter, our FY 2026 program is progressing as planned. As previously announced, we expect the costs to deliver the program to be weighted to the first half of the year, with savings weighted to the second half. The contractor order book of GBP 152 million is down 7% year-on-year and continues to represent sector-leading visibility with the equivalent of around five months of net fees. When the FY 2026 portion of the contractor order book is combined with the net fees delivered year-to-date, we have visibility of around 60% of full-year market consensus net fees. This, combined with our cost optimization program, extensions and new placements activity tracking in line with expectations, underpins our guidance for FY 2026. Finally, we have a robust balance sheet with net cash of GBP 51 million.
We launched our share buyback program of up to GBP 20 million in February, with GBP 1.6 million purchased as at yesterday's close. With that, I'll hand back to Timo.
Thanks, Andy. To summarize, we've seen a continued stabilization with the first quarter being in line with expectations. While it's too early to call a broad-based sustained recovery, we remain cautiously optimistic with a consistent new business performance versus the prior year delivered despite a much lower sales headcount demonstrating improved productivity and operational efficiency. We are also mindful that recent events in the Middle East, which contribute around 2% of net fees, have heightened geopolitical uncertainty. However, it's too soon to determine the potential impact on the global economy and our wider markets. Our immediate priority is the well-being of our teams in the regions and ensuring that they're fully supported. Over the medium term, I believe our opportunity is clear.
By putting clients at the center of everything we do, creating an agile organization and continuing to invest into our people, proposition, and innovation, we will stay at the forefront of industry dynamics and outpace change. Overall, I want to again thank Andy. I think the four and a half years have been really great. Also from my side, great partnership. Learned a lot and, sad to see him leave. But totally appreciate that. Overall, I think we're in a great shape as an organization. Our strategy is in place for multiple years, and we're just going to continue to further execute on that. With that, we're always open for any questions. If anyone has them, reach out to us.
Thank you all once again for joining us this morning, and we're speaking with you again at the time of our half year results on the 21st of July. Thank you all and have a great week.
Thank you.