Demerger of DX Services plc

Hays PLC
07 September 2004


7 September 2004


Demerger of DX Services plc


Introduction


On 3 June 2004 Hays plc ('Hays') announced its intention to demerge its mail
business ('DX') (the 'Demerger'). Hays today announces the forthcoming
publication of the Listing Particulars of DX Services plc (which will be the
holding company of DX) ('DX Services') and the expected timetable for the
Demerger and listing of DX Services on the London Stock Exchange.

As a result of the Demerger, Hays shareholders will own shares in two
independent, separately listed companies: Hays, which is a leading Specialist
Recruitment business; and DX Services, the UK's leading private business-to-
business (' B2B') mail company.

Under the Demerger, shareholders in Hays will receive one DX Services share for
every 20 Hays shares held. The Demerger will require shareholder approval and
will be conditional on admission of the DX Services shares to the Official List
of the UK Listing Authority and to trading on the London Stock Exchange
('Admission').


Expected timetable


The Listing Particulars for DX Services and a Circular convening an
Extraordinary General Meeting seeking approval from Hays shareholders are
expected to be published within one month with completion of the Demerger and
Admission expected to occur in early November.


Rationale for the Demerger


The Hays Board believes that the Demerger is in the best interests of
shareholders, employees and customers.  In particular, the Demerger is expected
to:

•           enable each business to pursue its own strategic development;

•           enable Hays and DX to operate independently, each with its own 
            dedicated and focused management team; and

•           enable Hays shareholders to own shares in two independent listed 
            companies, each with established market positions and brands.


Hays


Following the Demerger, Hays will be focused on Specialist Recruitment, and will
have no remaining significant non-core interests.  Hays is one of the world's
leading Specialist Recruitment businesses and is the UK's largest publicly
listed recruitment company.  It offers services for the recruitment of both
temporary and permanent staff with specialist skills in a wide range of sectors
including Accountancy and Finance, Construction and Property and Information
Technology.  It has a broad base of clients including major corporations, small
and medium-sized enterprises and entities from the public and not-for-profit
sectors.  Hays has over 300 offices across 16 countries. Over 220 offices are
located in the UK and the Republic of Ireland, where it is a leader in many of
the markets in which it operates.  In addition, Hays has one of the largest
Specialist Recruitment businesses in Australia and New Zealand and has a growing
office network across Continental Europe and in Canada.


Hays' strategy is to establish itself as the first choice for both candidates
with specialist skills seeking permanent or temporary work and employers looking
for the highest quality Specialist Recruitment services.


DX


DX is the UK's leading private B2B mail company.  It delivers over one million
items per day and operates a UK-wide, end-to-end network including collection,
sortation and final mile delivery.


The DX network supports three next-day delivery services:

•                   The Document Exchange is the only UK-wide operator of
document exchange services. It offers a private UK mail network able to provide
time-critical services to approximately 27,000 business members (primarily legal
and other professional firms).  Mail items are collected from and delivered to a
closed network of private mailbox exchanges. These are conveniently located
close to or on the members' premises;

•                   Parcels provides scheduled and daily delivery of
time-sensitive B2B items to high street retailers, such as travel agents and
opticians, as well as insurance companies and other commercial operations. The
Parcels business features relatively high levels of consolidation and a
recurring collection and delivery footprint;

•                   Mail has been developed following the partial deregulation
of the UK mail sector in 2002. DX provides B2B mail delivery services and is the
only licensed operator to offer these services without relying upon the Royal
Mail network. Mail can be collected from and delivered to the majority of UK
business addresses.


DX Trading record

                                                                           Year ended 30 June
                                                                          2002         2003         2004
                                                                            £m           £m           £m

Turnover
Document Exchange                                                         80.2         80.8         84.8
Parcels                                                                   52.3         48.6         44.3
Mail                                                                         -            -          2.8
                                                                       _______      _______      _______
                                                                         132.5        129.4        131.9
                                                                       _______      _______      _______
Operating profit, before exceptional operating items                      43.0         33.3         32.7
Depreciation                                                               3.3          4.3          4.9
Operating profit, before exceptional operating items
and depreciation                                                          46.3         37.6         37.6


The above financial information has been compiled by aggregating the historical
financial information of DX as if it had existed as a separate entity since 1
July 2001.  This resulted in differences from the segmental revenue and
operating profit reported in Hays plc's Group accounts in 2003 of £1.8m and
£0.1m respectively and in 2002 of £1.5m and £(1.0m) respectively.


Over the three year period ended 30 June 2004 growth in Document Exchange and 
Mail has been offset by a decline in Parcels turnover largely as a result of DX
eliminating certain non-core business and the loss of a small number of
contracts. The £2.8 million of Mail turnover in the year ended 30 June 2004
comprises £1.7 million of revenue from business previously conducted within the
Parcels segment but converted to services within the new regulated Mail services
and £1.1 million from new business.


Operating profit before exceptional operating items and depreciation fell by
£8.7 million in the year ended 30 June 2003 primarily due to a combination of
reduced turnover and cost increases mainly in relation to the expansion of
network capacity.  In contrast, in the year ended 30 June 2004, operating profit
before exceptional operating items and depreciation was in-line with the
previous year. DX management believes that the network now has sufficient
capacity to handle the anticipated increases in volumes in the next three years
without significant incremental investment.


Current trading


Since 30 June 2004 DX's Document Exchange and Parcels businesses have performed
satisfactorily. In addition, DX's Mail business continues to develop and gain
customer support. The trend of Mail revenue growth during the year ended 30 June
2004 is expected to continue in the current financial year.


Trading and prospects for DX for the current financial year remain in line with
management expectations.


DX Business strengths


High quality B2B mail and parcels service - DX has an established reputation for
high quality service and reliable delivery. DX management believes that this is
largely the result of the exclusive targeting of B2B customers and the
relatively high levels of consolidation of items achieved at the points of
collection and delivery.


End-to-end delivery network - DX operates the only private UK-wide end-to-end
mail delivery network. DX management believes that DX remains the only
competitor to Royal Mail able to provide a complete service for business users
from collection to final delivery. This includes the ability to deliver mail
pre-8am the next day to the majority of UK business addresses.


Well invested network - DX has invested in developing its network in recent
years. DX management believes that the network has sufficient capacity to handle
the anticipated increases in mail volumes in the next three years without
significant incremental investment.


Long-standing Document Exchange customer base - The majority of the Document
Exchange's customers have been customers of DX for over 8 years and the annual
customer renewal rate is over 90 per cent. DX management believes that this
loyalty is the result of DX's high quality service, brand strength and proven
mail handling ability.


Focused Parcels business - The Parcels business is differentiated from most of
its competitors. It features relatively high levels of consolidation, and a
recurring collection and delivery footprint. DX management believes that these
factors enable DX to offer a quality service at competitive prices.


Strong and stable financial profile - DX generates attractive financial returns.
In 2004, DX achieved an operating margin of 25% and operating cash flow after
capital expenditure but before tax of £35.6 million. DX generates a high return
on capital because its asset intensity benefits from the strategy of outsourcing
and it has modest working capital requirements. A significant proportion of the
customer base pays in advance, providing good visibility of earnings. DX
management believes that future financial performance will be underpinned by the
stable existing business, with revenue growth available from the deregulating UK
mail sector.


Strong position to pursue opportunities in the deregulating UK mail sector - The
existing capabilities and brand strength of DX give it a strong position from
which to pursue the B2B opportunities arising from deregulation of the UK mail
sector.  DX is currently the only new licensed entrant which offers a
combination of tracked and next day pre-8am delivery for B2B customers.


Experienced management - The Chief Executive (Peter Brougham), Finance Director
(Michael-John Saunders), Operations Director (Mark Siviter), Director of
Regulatory Affairs (David Sibbick) and the other senior executives represent a
strong and experienced management team.


DX Strategy


Providing high quality service - DX management's strategy is to provide
competitively priced B2B mail services which are more reliable and timely than
other mail services in the marketplace.


Building on customer loyalty - DX management aims to increase the existing high
levels of loyalty across the DX customer base by, for example, building further
brand recognition of high quality service with professional groups and
increasing the frequency of contact with small and medium-sized businesses.


Managing costs - DX management intends to control costs in order to maintain the
efficiency of the DX network which utilises sub-contractors for trunking,
collection and delivery. DX management believes that this provides the most
flexible and cost-effective service and encourages efficiency and reliability as
volumes increase.


Optimising sortation efficiency - DX management believes that a combination of
automated and manual sortation provides DX with operational flexibility and
optimises sortation efficiency.


Growing Mail services - DX management believes that the deregulation of the UK
mail market provides DX with the opportunity to grow its Mail services with
established and new customers. DX management will continue to focus on B2B mail.


Retaining and developing high quality employees - DX management believes that
DX's ability to retain, develop and motivate its employees at all levels of the
business is an important source of competitive advantage.


Progress is being made in delivering the above strategy. In particular, the
rationalisation of certain sortation and trunking activities and the
reorganisation of the product and sales teams commenced in May 2004 are now
complete.


DX Services Board


The Board of DX Services is as follows:


Executive Directors

Peter Brougham                                     Chief Executive

Peter Brougham (48) has been Chief Executive of DX since January 2003. Prior to
joining DX, he worked for 8 years at Emery Worldwide as Vice President EMEA
(1997-2003) and Operations Director of the same division (1995-1997). He has
over 25 years experience in the express and logistics industry.


Michael-John Saunders                              Finance Director

Michael-John Saunders (43) is a chartered accountant and joined DX as Finance
Director in December 2003. Previously, he was Chief Operating Officer and
Finance Director for Boodle Hatfield, a London law firm, and prior to that he
worked at Arthur Andersen for 20 years, becoming a Partner in 1995.


Non-Executive Directors

John Maxwell                                       Chairman

John Maxwell joined DX as Chairman in June 2004. He was Director General of the
Automobile Association (1996-2000) and led the organisation through
demutualisation. Prior to joining the Automobile Association he was an Executive
Director of Prudential plc, responsible for Corporate Development. He is a non-
executive director of a number of other companies.


Paul Hampden Smith                                 Non-Executive Director

Paul Hampden Smith joined DX as a Non-Executive Director in August 2004 and is
Chairman of the Audit Committee. He is a Chartered Accountant and Group Finance
Director of Travis Perkins Plc, having held the post since 1996 and has worked
for the group for 15 years.


The Board of DX Services intends to appoint a further Non-Executive Director in 
due course.



DX Services dividend policy


The Board of DX Services intends to adopt a progressive dividend policy which
will take into account the underlying growth in earnings of DX, its capital
requirements and cash flows, and an appropriate level of dividend cover.


Following Demerger, the Board of DX Services intends to pay in May 2005 an
interim dividend of 4 pence per DX Services share in respect of the financial
year ending 30 June 2005.


The Board of DX Services intends that interim and final dividends will normally
be paid in May and November in the approximate proportions of one-third and two-
thirds of the total annual dividend, respectively.


Indebtedness and financing facilities


Upon Demerger, DX Services expects to have net debt of approximately £75 million
funded out of a new £90 million committed five-year banking facility.


Continuing arrangements between DX and Hays


Following the Demerger, DX Services and Hays will operate as separate listed
companies with no common directors.


The relationship between Hays and DX Services after the Demerger will
principally be regulated by the Demerger Agreement, details of which will be set
out in the Listing Particulars.


Commenting, Bob Lawson, Chairman of Hays, said:


'I am delighted with today's announcement of the Demerger of DX which enables
Hays Shareholders to participate in the future potential of the DX business. The
Board believes that both Hays and DX have promising futures as independent
companies.'


Commenting, John Maxwell, Chairman of DX Services, said:


'I am very excited about the opportunities that the Demerger presents for DX. I
believe that DX is well positioned to take advantage of the new regulatory
environment within the UK mail industry. Through a combination of our well-
established Document Exchange and Parcels business and the growth opportunities
from our regulated Mail services, DX has the potential to deliver considerable
value to shareholders as an independent listed company.'


On 9 September 2004, the DX management team will host a presentation for
analysts and investors in London. The meeting will take place at 9.00am at UBS,
1 Finsbury Avenue.


Enquiries                                               Telephone No


Hays plc
Bob Lawson, Chairman                                    [phone]
John Martin, Group Finance Director

DX Services plc
Peter Brougham, Chief Executive                         [phone]
Michael-John Saunders, Finance Director

Citigroup (adviser to Hays and sponsor to DX Services)
Philip Robert-Tissot                                    [phone]
Jonathan Steers

UBS (broker to Hays and DX Services)
John Woolland                                           [phone]
Peter Luck

Brunswick
Jon Coles                                               [phone]
Rupert Young



This press release, which has been prepared by and is the sole responsibility of
Hays, has been issued by Hays. This press release has been approved by Citigroup
Global Markets Limited ('Citigroup'), Citigroup Centre, Canada Square, Canary
Wharf, London E14 5LB, solely for the purposes of section 21 (2)(b) of the
Financial Services and Markets Act 2000.


Citigroup is acting for Hays and no one else in connection with the Demerger and
for DX Services and no one else in connection with Admission and will not be
responsible to any other person for providing the protections afforded to
clients of Citigroup nor for providing advice in relation to the Demerger or
Admission.


UBS Limited is acting for Hays and no one else in connection with the Demerger
and for DX Services and no one else in connection with Admission and will not be
responsible to any other person for providing the protections afforded to
clients of UBS Limited nor for providing advice in relation to the Demerger or
Admission.


This press release does not comprise listing particulars or a prospectus
relating to Hays or DX Services and does not constitute an offer or invitation
to purchase or subscribe for any securities of Hays or DX Services and should
not be relied on in connection with a decision to purchase or subscribe for any
such securities or in relation to a decision to vote in favour of or against the
Demerger. This press release does not constitute a recommendation regarding the
securities of Hays or DX Services. Additional material information will be
included in the Listing Particulars and Circular and information contained in
this press release may change.


The financial information concerning Hays and DX contained in this announcement
does not amount to statutory accounts within the meaning of Section 240 of the
Companies Act 1985.




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            The company news service from the London Stock Exchange