Hays shares drop after fee growth hampered by UK softening

By Sarah Young LONDON (Reuters) - Recruitment firm Hays shares slumped to a 10-month low on Thursday after a quarterly trading update from the company showed a slowdown in net fee growth in its main domestic market, prompting some analysts to cut earnings forecasts. In the UK and Ireland, which last year accounted for 36 percent of annual net fees, Hays said underlying net fees rose 6 percent in its first quarter, versus the 9 percent rate recorded in the previous three months. Shares in Hays, which places workers in areas such as finance, construction and IT, tumbled as low as 136 pence, their lowest since December, before paring their losses to be down 4.8 percent at 140.4p by 0815 GMT. Analysts at UBS called the first quarter result in the UK disappointing, noting: "Excluding an 'exceptional' education result in September, the public sector has seen increasing caution." Jefferies analysts said they would trim their earnings per share forecasts for the current financial year by 2 percent. For the group as a whole, underlying net fee growth reached of 8 percent in the first quarter, and the company said in a statement it had enjoyed a good start to the new financial year, with all three key businesses delivering further growth. Group Finance Director Paul Venables shrugged off concerns over the UK business. "The only area that we've seen a bit of a slowdown is in public sector, which I think is to be expected a few months after the election as a number of authorities begin to focus on spending rounds," he said in a telephone interview. Growing demand for Hays's services elsewhere in Europe gave confidence in prospects, Venables said, pointing to an increasing trend for companies in Germany, France and Spain to use a recruitment service rather than hire staff themselves. The company said that on a headline basis net fee growth was 3 percent in the quarter ended Sept. 30, lower than the underlying growth due to the depreciation of the euro and the Australian dollar against sterling. It also warned that recent exchange rates would reduce operating profit by 10 million pounds ($15.3 million) in the current financial year compared with last year. ($1 = 0.6531 pounds) (Editing by Paul Sandle and David Holmes)