Preliminary Results
10th September 2002
Hays plc
PRELIMINARY RESULTS FOR THE YEAR TO 30 JUNE 2002
Financial highlights:
Year to 30 June 2002 2001
Profit and loss account
Turnover from continuing operations £2,434.4m £2,430.1m
Operating profit * £247.3m £298.0m
Profit before tax * £232.1m £271.7m
Earnings per share * 9.40p 11.01pâ€
Dividend per share 4.68p 4.07p
Cashflow
Free cash flow before acquisitions and disposals £143.0m £79.2m
Interest cover * 13x 11x
Net debt £232.0m £320.9m
* Before goodwill amortisation and exceptional items.
†Earnings per share in 2001 has been restated on adoption of FRS 19 'Deferred
Tax'.
Business Highlights:
Group
* Continued organic investment and increasing business focus.
* Strong cash flow, with a net cash inflow of £143 million before
acquisitions and disposals.
* Net debt reduced by £89 million to £232 million.
Personnel
* Outstanding result in difficult market conditions.
* Continued investment in new offices and geographic expansion.
* Major growth in recruitment management contracts.
Commercial
* Hays IMS reorganisation lays foundation for further growth.
* NMIS contract suffers delays in Police Force implementation.
* Strong growth in offshore processing operations.
Mail & Express
* Structured to benefit from liberalisation of the UK mail market.
* Operations on the Continent return to profit.
Logistics
* Overall performance in line with the market.
* New contract wins and major contract renewals strengthen the move away from
commodity services.
Bob Lawson, Chairman, commented:
'Our strong cash flow and new contract wins re-affirm the resilience of our
businesses in difficult market conditions.
The excellent sales and profit performance of Hays Personnel fully endorse our
commitment to remain focussed in specialist recruitment whilst continuing to
develop new market sectors. As more new offices are opened outside the UK we
are demonstrating that our business model is equally valid in other geographic
markets.
Mail & Express demonstrated its inherent resilience and maintained its profits
whereas Commercial and Logistics have been more affected by the economic
downturn.
Service excellence, combined with our strong cash flow, will ensure that Hays
is well positioned for the upturn when it happens'.
Enquiries:
Bob Lawson Chairman 01483 302203
Hays plc
Neil McLachlan Group Finance Director 01483 302203
Hays plc
Jon Coles Brunswick 020 7404 5959
Conference Call:
Bob Lawson, Neil McLachlan and Graham Williams of Hays plc will conduct a
conference call for shareholders at 3.30pm UK time on Tuesday 10 September
2002. The dial-in details are as follows:
UK dial-in number: 0500 551 089
European dial-in number: + 800 4444 4411
USA dial-in number: + 1 800 513 7968
Password: Hays
The call will be recorded and available for playback on the following:
UK/European dial-in number: 0500 637 880
UK/European access code: 267422
USA replay dial-in number: + 1 800 495 0250
USA access code: 267422
The Instant Replay will be available until 20 September 2002.
Presentation on the web-site and delayed web-cast:
The presentation to analysts will be available to view on the Hays website from
2.00pm UK time on 10 September 2002 - www.hays.com
The presentation will also be filmed and distributed by RAW Communications to
those who subscribe to that service.
Chairman's Statement
This report has been prepared against the backdrop of the most volatile and
uncertain economic conditions of the last ten years. Such an environment has
inevitably affected customers and resulted in more difficult trading conditions
than were expected this time last year. The primary challenge in these
circumstances must be to maintain operating cash flow and to be particularly
vigilant on costs at a time when customers are slow to change and invest.
Financial Highlights
Our results reflect the market environment with profit before tax, goodwill and
exceptional items down 15% on sales from continuing operations that were
slightly ahead. The reduction in profit was driven by a number of factors. The
primary ones are: depressed markets, the cost of developing new services within
Mail and Express following the enforced return of profitable business to Royal
Mail, reorganisation of Hays IMS and delays with the National Management
Information System (NMIS) contract with the Police. Cash flow, however, was
particularly strong with a net cash inflow of £143.0 million before
acquisitions and disposals and net debt reduced by a further £88.9 million to £
232.0 million. Interest was covered 13 times by operating profit.
Dividends
We paid our shareholders an interim dividend of 1.52p per share on 31 May 2002.
The Board is recommending a final dividend of 3.16p per share in respect of the
year to 30 June 2002, for payment on 29 November 2002 to shareholders on the
register at 25 October 2002. The total dividend of 4.68p per share for the year
is an increase of 15%. The dividend is covered twice, before goodwill
amortisation and exceptional items.
The Board's policy is to continue to provide shareholders with a progressive
dividend whilst maintaining our ability to invest in future growth.
Personnel
Hays Personnel has withstood the decline in demand much better than expected.
Although profits were reduced by 16% to £122.5 million on sales down by less
than 1%, our performance compares very favourably with others in the industry.
Like for like margins have been maintained but the net margin declined due to a
change in the business mix. Fees for temporary staff recruitment, with
relatively lower margins, grew by 2% to represent 87% of Personnel's sales, but
the higher margin permanent recruitment activity declined by 15%. Since April,
monthly net fee income has been broadly flat.
Despite tough market conditions, continued development of Hays Personnel
remains a strategic priority. New offices have been opened in the UK to serve
growing sectors, including the public sector, and are already showing signs of
success. International development has continued with new offices opening for
Hays Accountancy Personnel and Hays Montrose in Lyon and other major French
cities. Recent experience has reinforced our confidence in the long-term
attractiveness of our specialist Personnel offering within Continental Europe.
The Hays Personnel Solutions contract with Liverpool Victoria for HR
outsourcing has met all the customer's and our objectives and provides a high
quality reference site from which to develop other opportunities in this
growing sector.
The division continues to deliver exceptional profitability and is well
positioned to benefit from any strengthening of the market.
Commercial
The weaker year on year performance evidenced by a decline in operating profits
to £27.6 million resulted from significantly reduced demand in the market for
Hays IT Consulting and Solutions and continued investment in Hays IMS
(Information Management Solutions). In Hays IMS, significant operational
problems were encountered in undertaking a major reorganisation of storage
sites at the same time as implementing a new IT system. Profit reduction was
exacerbated when management decided, correctly, to incur increased costs to
maintain customer service. I am pleased to report that the reorganisation is
now progressing well.
Hays IT Consulting and Solutions has been adversely affected by the slow uptake
by individual Police Forces of the National Management Information System
(NMIS) licensed by the Police Information Technology Organisation (PITO).
Consequently, Hays has incurred the significant cost of underutilised
specialist consultants whilst awaiting decisions from individual Police Forces.
The system is fully installed in one Police Force, with 17 others in various
stages of implementation. The remaining Forces have yet to agree to accept
NMIS, but discussions are under way with PITO to ameliorate the situation.
Other parts of Hays Consulting and Solutions have experienced weak demand as
clients put IT projects on hold. We do not see recovery in this sector in the
medium term and have therefore taken the decision to write off £53 million of
acquisition goodwill and other assets in this division.
The office process outsourcing activities of Hays Document Technologies
(billing), Hays Document Management (data input and processing) and Hays
Marketing Technologies (database management) have performed well. In
particular, our offshore back office processing activities in India, Sri Lanka
and Poland have grown strongly and we anticipate further positive developments
in the year ahead. The market for both front and back office outsourcing
remains attractive. Under the leadership of our new management team we will be
investing to strengthen our position in our chosen sectors.
Mail and Express
In the UK, Hays Mail and Express is the leader in business to business mail
delivery within the private sector, producing operating profits of £50.2
million, down £1.1 million. In September 2001 we were granted three interim
licences by the regulator, Postcomm. These interim licences have attracted
considerable customer interest and have enabled us to introduce DX Metro, which
provides direct-to-the-door deliveries in central London, Manchester and
Edinburgh. However, in many instances the licences awarded to Hays do not
provide sufficient certainty for customers to change from their current
arrangements. Understandably, customers greatly value security of supply, which
as yet we have been unable to offer. This situation has been exacerbated by
Postcomm's decision to delay the start of permanent mail market liberalisation
until January 2003. Hays has applied for a defined activity licence which will
make all our interim licences permanent and provide us with further
opportunities to introduce innovative services.
To eliminate continued uncertainty for customers, we elected to settle our
outstanding litigation with Royal Mail at a total cost of £6.4 million and this
has been charged as an exceptional operating item in the profit and loss
account. The impact of the enforced return of some non-DX business to Royal
Mail and the costs of developing new services contributed to the £1.1 million
reduction in profit in the year.
Hays Mail and Express in Continental Europe has achieved an impressive turn
around and a return to profitability for the year. This business is now on a
solid foundation and work is under way to further strengthen our position,
particularly in France.
In summary, Hays Mail and Express is well placed to benefit from the
liberalisation of the UK mail market and has the infrastructure to develop
unique services for selected customers.
Logistics
Hays Logistics operating profits of £45.7 million were down from £52.6 million
in the previous year. This was in line with the logistics market as a whole.
The division's results include the launch costs of developing Hays Container
Services, Inc., the reusable crates business in the USA, and continued
investment in Hays Fourth Party Solutions (4PS).
Hays Continental Logistics achieved a substantial profit improvement in all
countries except Germany, where the high costs of reorganising the Iveco
contract held back profits.
Progress with 4PS has continued and we anticipate the launch of a pilot
operation in Benelux before the end of the year. However, the achievement of
more chargeable revenues has reduced overall net revenue investment in 4PS by £
1.4 million to £2.5 million per annum.
Hays Logistics UK experienced continued margin pressure in the retail sector
which was exacerbated by declining volumes handled by the retail support
network. Lower volume growth in the technology sector was offset by efficiency
improvements in the reverse logistics operations. Our Crate Management business
operated on behalf of retailers experienced substantial growth with the rollout
of the Sainsbury's contract.
Overall the Logistics business is performing as we expect in tough market
conditions. The business pipeline has been strengthened to provide a basis for
growth in the period ahead with significant contract wins and renewals that
include blue chip customers such as Carrefour, Energizer, Scottish Courage and
Waitrose.
Management
As market conditions deteriorated during the year Hays' management team
targeted further investment and development to good effect. While costs were
managed aggressively the Group's infrastructure has been strengthened,
particularly in the area of management information.
The search for a new Chief Executive is, I hope, drawing to a conclusion. We
are at an advanced stage of negotiation to appoint our chosen candidate and I
anticipate being able to make an announcement by the time of the Annual General
Meeting in November.
It is a pleasure to advise that our Board has been greatly strengthened by the
appointments of Pierre Danon, Chief Executive Officer of BT Retail, and Lesley
Knox, a founder director of the investment bank British Linen Advisers and a
director of a number of other public companies. The Board is already benefiting
from the broad and varied experience that these new non-Executive Directors
bring to its deliberations.
I would like to thank all the staff in Hays for a year of tremendous hard work,
which has moved the Group forward to a stronger and more effective base for its
future development. Customer service has remained their absolute priority and
this provides a solid foundation for strong and enduring relationships for the
future.
Prospects
A number of the markets in which we operate continue to be volatile and
uncertain with little customer confidence to commit to development. In
Personnel net fee income since April has been broadly flat, whilst in
Logistics, Commercial and Mail and Express the trends seen in the second half
of the year to 30 June 2002 have continued. Trading conditions remain difficult
and looking ahead we see no sign of improvement in the short term. Consequently
we are investing in our businesses to enhance their market position and to
develop the effectiveness of our service offerings to customers. Service
excellence, combined with our strong cash flow, will ensure that Hays is well
positioned for the upturn when it happens. We continue to see good potential
for our specialist activities and will vigorously pursue the opportunities as
they arise.
Hays plc
Consolidated Profit and Loss Account
for the year ended 30 June 2002
(In £'s million) 2002 2001
(Restated)
TURNOVER
Continuing operations 2,434.4 2,430.1
Discontinued operations 20.3 204.2
2,454.7 2,634.3
OPERATING PROFIT
Before goodwill amortisation and exceptional items 247.3 298.0
Goodwill amortisation (25.0) (18.5)
Exceptional operating items (59.4) (22.5)
162.9 257.0
OPERATING PROFIT
Continuing operations 161.6 246.3
Discontinued operations 1.3 10.7
162.9 257.0
Share of operating profit of associates 4.0 -
EXCEPTIONAL ITEMS
Loss on disposal and closure of businesses (0.1) (64.9)
Net interest payable (19.2) (26.3)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 147.6 165.8
Tax on profit on ordinary activities (65.2) (73.5)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 82.4 92.3
Equity minority interests - (0.2)
PROFIT FOR THE FINANCIAL YEAR 82.4 92.1
Dividends (79.5) (69.2)
Transferred to reserves 2.9 22.9
EARNINGS PER SHARE
Basic 4.82p 5.41p
Before goodwill and exceptional items 9.40p 11.01p
Diluted earnings per share 4.79p 5.35p
DIVIDEND PER SHARE 4.68p 4.07p
Interest cover before exceptional items and 13X 11X
goodwill amortisation
The results, balance sheet, statement of total recognised gains and losses and
movement in equity shareholders' interests for the period ended 30 June 2001
have been restated as a result of the adoption of FRS 19 `Deferred Tax'.
Hays plc
Consolidated Balance Sheet
at 30 June 2002
(In £'s million) 2002 2001
(Restated)
FIXED ASSETS
Intangible assets 220.0 286.7
Tangible assets 509.9 555.2
Investments 103.0 54.3
832.9 896.2
CURRENT ASSETS
Stocks 25.2 40.3
Debtors 478.6 541.9
Cash at bank and in hand 120.8 133.0
624.6 715.2
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Borrowings (26.3) (45.3)
Other creditors (548.2) (609.6)
(574.5) (654.9)
NET CURRENT ASSETS 50.1 60.3
TOTAL ASSETS LESS CURRENT LIABILITIES 883.0 956.5
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Borrowings (326.5) (408.6)
Other creditors (2.8) (25.6)
PROVISIONS FOR LIABILITIES AND CHARGES (83.6) (60.0)
NET ASSETS 470.1 462.3
CAPITAL AND RESERVES
Called up share capital 17.3 17.3
Share premium account 368.7 365.5
Profit and loss account 83.3 78.7
EQUITY SHAREHOLDERS' INTERESTS 469.3 461.5
EQUITY MINORITY INTERESTS 0.8 0.8
470.1 462.3
Hays plc
Summarised Consolidated Cash Flow Statement
for the year ended 30 June 2002
(In £'s million) 2002 2001
CASH INFLOW FROM OPERATING ACTIVITIES 303.8 301.0
Returns on investments and servicing of finance (18.9) (27.0)
Tax paid (70.1) (83.1)
Net capital expenditure (71.8) (111.7)
NET CASH INFLOW BEFORE ACQUISITIONS AND DISPOSALS 143.0 79.2
Net disposals / (acquisitions) 36.4 (46.8)
Equity dividends paid (72.9) (63.1)
NET CASH INFLOW / (OUTFLOW) BEFORE FINANCING 106.5 (30.7)
Financing (130.5) 68.4
(DECREASE) / INCREASE IN CASH (24.0) 37.7
RECONCILATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease) / increase in cash (24.0) 37.7
Cashflow from financing 134.8 (77.8)
110.8 (40.1)
Borrowings acquired/disposed - 0.1
Loan notes issued - (13.6)
Exchange adjustments (21.9) 9.7
MOVEMENT IN NET DEBT IN THE YEAR 88.9 (43.9)
OPENING NET DEBT (320.9) (277.0)
CLOSING NET DEBT (232.0) (320.9)
Hays plc
Reconciliation of movements in equity shareholders' interests
for the year ended 30 June 2002
(In £'s million) 2002 2001
(Restated)
Profit for the financial year 82.4 92.1
Dividends (79.5) (69.2)
2.9 22.9
Other recognised gains and losses relating to the year 0.3 (2.5)
New share capital subscribed 3.2 6.3
Goodwill written back 1.4 49.1
Net increase in equity shareholders' interests 7.8 75.8
Opening equity shareholders' interests as restated 461.5 385.7
(see note below)
Closing equity shareholders' interests 469.3 461.5
The impact of the prior period adjustment (relating to the adoption of FRS 19)
on opening equity shareholders' interests is as follows:
(In £'s million) 2002 2001
(Restated)
As previously reported 484.5 407.3
Prior period adjustment (23.0) (21.6)
As restated 461.5 385.7
Notes
1. STATEMENT UNDER S240 - PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information for the financial year ended 30 June 2001 is
based on the statutory accounts for the year ended 30 June 2001 as restated
following adoption of FRS 19. Those accounts, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of Companies. The
financial statements for the financial year ended 30 June 2002, upon which the
auditors issued an unqualified opinion, have yet to be delivered to the
Registrar of Companies.
2. EXCEPTIONAL ITEMS
(In £'s million) Note 2002
EXCEPTIONAL OPERATING COSTS
Settlement of Consignia claim (i) (6.4)
Impairment of goodwill and intangible (ii) (53.0)
assets and
provision for reorganisation of the IT
Solutions business
TOTAL EXCEPTIONAL OPERATING COSTS (59.4)
OTHER EXCEPTIONAL ITEMS
Net losses on disposal of operations (iii) (0.1)
TOTAL EXCEPTIONAL ITEMS (59.5)
(i) During the year Consignia issued legal proceedings against Hays claiming
infringements of the Postal Services Act 2000 and the British
Telecommunications Act 1981. The action claimed that certain services provided
by Hays infringed Consignia's de facto postal monopoly. On 18 March 2002 Hays
agreed to settle Consignia's claim in order to concentrate fully on developing
products and services to meet the needs of clients in the deregulating market
environment and to ensure an orderly market for the future. Hays paid £5.5
million in damages and incurred a further £0.9 million in legal costs.
(ii) Following a review of the IT Solutions business and the performance of
certain contracts, management has concluded that goodwill and intangible assets
totalling £35.7 million have insufficient future revenue prospects to justify
continued capitalisation. £32.7 million of this relates to goodwill purchased
in prior years and £3.0 million relates to intangible assets relating to the
development of IT products. The review of the IT Solutions business has
resulted in the recognition of reorganisation costs of £17.3 million, the
majority of which have arisen from existing property lease commitments.
(iii) During the year the Group completed the disposal of several non-core
operations including its chemicals, retail installation, clinical and French
co-manufacturing operations.
The trading results of the clinical and French co-manufacturing operations are
shown as discontinued.
Exceptional items in the year resulted in a cash inflow of £46.1 million and a
tax credit of £6.4 million.
3. SEGMENTAL INFORMATION
Before goodwill amortisation and exceptional items
(in £m's million) 2002 2002 2002 2001 2001 2001
Turnover Operating Operating Turnover Operating Operating
Profit net Profit net
assets assets
BY BUSINESS SECTOR
Continuing Operations
Personnel 1,076.9 112.5 105.5 1,084.0 146.0 121.1
Commercial 227.5 27.6 119.4 222.7 36.9 113.3
Mail & Express 249.8 50.2 20.0 242.5 51.3 10.5
Logistics 880.2 45.7 311.9 880.9 52.6 292.9
2,434.4 246.0 556.8 2,430.1 286.8 537.8
Discontinued 20.3 1.3 - 204.2 11.2 87.3
operations
2,454.7 247.3 556.8 2,634.3 298.0 625.1
BY GEOGRAPHICAL AREA
Continuing Operations
United Kingdom 1,607.8 197.4 321.5 1,606.3 231.6 309.8
Other Europe 695.9 37.8 221.7 674.8 36.3 212.2
Rest of the World 130.7 10.8 13.6 149.0 18.9 15.8
2,434.4 246.0 556.8 2,430.1 286.8 537.8
Discontinued 20.3 1.3 - 204.2 11.2 87.3
operations
2,454.7 247.3 556.8 2,634.3 298.0 625.1
After goodwill amortisation and operating exceptional items
(in £m's million) 2002 2002 2002 2001 2001 2001
Turnover Operating Operating Turnover Operating Operating
Profit net Profit net
assets assets
BY BUSINESS SECTOR
Continuing Operations
Personnel 1,076.9 116.8 105.5 1,084.0 138.3 121.1
Commercial 227.5 (33.7) 119.4 222.7 24.1 113.3
Mail & Express 249.8 39.7 20.0 242.5 42.5 10.5
Logistics 880.2 38.8 311.9 880.9 41.4 292.9
2,434.4 161.6 556.8 2,430.1 246.3 537.8
Discontinued 20.3 1.3 - 204.2 10.7 87.3
operations
2,454.7 162.9 556.8 2,634.3 257.0 625.1
BY GEOGRAPHICAL AREA
Continuing Operations
United Kingdom 1,607.8 123.4 321.5 1,606.3 202.4 309.8
Other Europe 695.9 27.4 221.7 674.8 25.0 212.2
Rest of the World 130.7 10.8 13.6 149.0 18.9 15.8
2,434.4 161.6 556.8 2,430.1 246.3 537.8
Discontinued 20.3 1.3 - 204.2 10.7 87.3
operations
2,454.7 162.9 556.8 2,634.3 257.0 625.1
Operating net assets are net assets excluding interest bearing assets and
liabilities, restructuring and disposal provisions, goodwill, corporation tax
and dividend balances.
11
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