UPDATE: Hays Stays Cautious As Recovery Remains Patchy

Hays PLC (HAS.LN), the U.K .-based recruiter with operations across Europe, Asia and South America, Thursday said that while jobs markets are recovering in some regions, it is still facing weakness in key markets like the U.K.

The company, which makes about 46% of its net fees in the U.K., remains very cautious on the prospects for the U.K. jobs market this year, saying it expects "fragile stability" rather than a recovery. Finance Director Paul Venables said the jobs market outside London remains in recession, and the upcoming general election is adding uncertainty to a market lacking any stimulus.

Whatever the outcome of the U.K. election, economists expect the next government to cut public spending sharply in an effort of reduce the country's huge budget deficit. That could lead to a second wave of unemployment, with the public sector following the private sector in shedding staff.

Hays warned that resumed growth in the private sector in the U.K. was already being offset by reduced demand in the public sector.

Outside the U.K., Hays said it had made selective investments in Asia, Australia, Germany and Brazil, and its overall consultant headcount had risen 2%.

"Where markets are recovering, we are now increasing our capacity and selectively recruiting to meet growing demand," said Chief Executive Alistair Cox.

However, the growth areas were not enough to offset weakness elsewhere and net fees in the fiscal third quarter to March 31 fell 5%, or 10% on an organic basis at constant currency.

Net fees were down 18% in the U.K., but rose 23% in Asia Pacific. Overall net fees in the private sector were down 8% while net fees in the public sector, which accounted for 23% of total group net fees, fell 17%.

However, overall net fees were up 2% on the previous quarter, led by 7% sequential net fee growth in Asia Pacific.

Seymour Pierce analyst Caroline de La Soujeole said the statement shows that things are getting better, although other analysts expressed concerns about the future of the public sector.

At 0915 GMT, Hays shares were down 1 pence, or 0.7%, to 112 pence, slightly outperforming an 0.9% fall in the FTSE 250 Index.

The company said that net debt increased to some GBP80 million, from GBP38.4 million in December, due to normal phasing of cash outflows together with a modest increase in working capital as trading improved through the quarter. Still it added that it has delivered solid cash flow performance.

Hays shares closed Wednesday at 112 pence, valuing the company at GBP1.55 billion. They have gained 8% since the start of the year on hopes that the recruitment market, previously shattered in the recession, has slowly started to improve.

-By Anita Likus, Dow Jones Newswires; [phone]; [e-mail]