Hays Third-Quarter Fee Gains Hampered by U.K. Spending Cuts

Hays Plc, the U.K.’s biggest recruitment company, said fiscal third-quarter net fees increased 16 percent on a comparable basis, with gains in Asia and continental Europe helping to offset U.K. government cuts.

A “strong performance” in international operations was weighed down by a 2 percent drop in the U.K. and Ireland, the London-based company said in a statement today. Government employment may be “rumbling along on the bottom” for two years, Finance Director Paul Venables said on a conference call with reporters.

In the U.K., fees for public projects plunged 37 percent as budget cuts started taking effect. The decline was partly offset by an 18 percent gain in private-industry hiring, the company said. Comparable sales gained 23 percent in the Asia-Pacific region, even though business was hurt by earthquakes in Japan and New Zealand and flooding in Australia.

“Exposure to UK public sector is likely to drag overall progress for Hays given the ongoing market challenges, and the ramification of Japanese earthquake is likely to take the shine off full-year performance,” wrote Paul Jones, a Panmure Gordon analyst with a “hold” recommendation on Hays.

Hays fell 5.4 pence, or 4.5 percent, to 114.1 pence at the 4:30 p.m. close in London. The shares have dropped 11 percent this year, giving the company a market value of 1.58 billion pounds ($2.6 billion).

The Japanese earthquake, tsunami and subsequent nuclear power plant accident may reduce second-half operating profit by about 2 million pounds, the company said. Australian floods and a New Zealand earthquake may trim the figure by as much as 2 million pounds, Hays said.

Hays sees “little evidence” that private-industry hiring in the U.K. is offsetting government-spending cuts, Venables said in an interview on Bloomberg Television’s “On the Move.” Private-industry business is “gradually improving,” yet is mostly replacement hiring, Venables said.

In continental Europe and other parts of the world, net fees gained 35 percent on a comparable basis in the third quarter, led by Brazil, Spain, Russia, and Poland.

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