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Hays shares drop as first quarter gross profit misses analysts' expectations

Hays said it remains "mindful" of macroeconomic conditions as Brexit uncertainty continues to drag on UK business confidence
Shares fell more than 12% in morning trading

Hays PLC (LON:HAS) shares dropped on Thursday after the recruitment firm posted weaker-than-expected first quarter gross profit growth.

The company said net fee income, a measure of recruiters’ gross profit, rose 9% on a like-for-like (LFL) basis, 2 percentage points below the market consensus forecast.

LFL net fees in the UK and Ireland business increased 3%, marking a slowdown from the 5% gain reported in the previous quarter amid weaker business confidence due to Brexit uncertainty.

The growth in UK and Ireland unit,  which accounts for 24% of the group’s net fees, was led by public sector job placements as a result of easier comparatives following the negative impact of IR35 reforms in April 2017 that shift the responsibility from the contractor to the public sector client or hirer.

READ: Hays hikes final and special dividends as international markets drive profit growth

The Australia and New Zealand division also saw growth in LFL net fees ease back with a 7% rise, compared to a 14% increase in the fourth quarter, due to tough comparatives. The unit represents 18% of total net fees. Hays said the division was boosted by favourable market conditions and growth in IT.

Germany, which makes up 27% of net fees, generated a 13% rise in LFL net fees, down from final quarter’s 16% rate of growth, driven by strong demand for IT, engineering, accountancy and finance roles.

The Rest of the World arm – the company’s biggest division, accounting for 31% of net fees – posted a 14% rise in LFL net fees, bolstered by growth in France, Spain, Asia and the Americas. That compared to a 23% increase in LFL net fees in the fourth quarter.  

“Looking ahead, while we are mindful of macroeconomic conditions, the outlook remains positive across our International markets,” said chief executive Alistair Cox.

“We are continuing to invest in our key structural growth markets, notably Germany, France, the USA and Asia to capitalise on the many opportunities we currently see.

"We remain focused on driving profitable, cash-generative growth and leveraging our platform, which is the largest and most balanced in our industry. This means we can look to the future with confidence."

Shares fell 12.1% to 154p in morning trading. 

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