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Slower jobs market after EU vote hits UK operations at recruitment firm SThree

Recruitment firm SThree has said a slower jobs market following the EU referendum is continuing to hurt its UK operations, although a strong performance in the US and continental Europe helped drive overall profits higher.

Gross profits from its UK and Ireland arm fell 16% to £27 million in the six months to May 31, which the firm blamed on Brexit worries and public sector reforms.

However, the poor performance was offset by strong figures from the US and Europe, helping total gross profit rise 2% at constant currency to £134.3 million.

The US, which has now replaced the UK as SThree's second biggest region, saw gross profits soar 16% in the first half, while mainland Europe was also up 7% year-on-year.

The firm pointed out that 80% of its gross profit now comes from markets outside the UK and Ireland, compared to 73% in 2016.

It follows a strategic decision by the group to downsize its operations in Britain, with large cuts to permanent staff in the region.

Chief executive Gary Elden said: "We are encouraged by the improvement in momentum across the business in the period, particularly the strong performances in continental Europe and the US.

"Our contract business continues to deliver good growth across almost all regions, with continental Europe and the US again being the highlights.

"Looking ahead, the continued momentum of our contract business and improved permanent yields give us a solid base from which to grow in a macro-economic environment which remains uncertain."

Brexit has put the brakes on hiring in the Square Mile, with other recruitment firms such as Page Group and Hays also flagging a contraction in their UK businesses.

However, their overseas businesses have provided some protection.

Analysts at Liberum Capital reiterated their "buy" recommendation on the stock, arguing the continued recovery in the US supports a positive view.

"With an encouraging outlook for both the US and Continental Europe in 2H17, it would appear that the risks to our FY17 estimates lie firmly to the upside.

"This potential momentum alongside the group's attractive geographic and discipline exposure and its contract bias leaves the company relatively well placed to navigate through these uncertain times."

SThree shares were up over 4% to 317p in mid-morning trading.

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