Interim Results - 6 Months to 31 December 1999

Hays PLC 6 March 2000 Hays plc INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 1999 Hays plc, the Business Services Group, today announced Interim Results for the six months to 31 December 1999. The main points are: First Half First Half 1998/1999 1999/2000 * Turnover £876.9m £1,029.8m +17% * Profit before tax, amortisation of goodwill on acquisitions and exceptional items £110.4m £121.7m +10% * EPS before amortisation of goodwill on acquisitions and exceptional items 4.6p + 5.2p +13% * Dividend 1.0p + 1.15p +15% (+ adjusted for bonus issue) * Distribution continues to win major contracts, notably with IVECO to manage the distribution of spare parts across Europe and with Kentucky Fried Chicken to provide integrated management of the complete supply chain. * Mail Services is accelerating its growth through expansion into Spain and new mailroom management contracts. * The recently established central development team in Business Process Support is already discussing in detail some substantial and exciting projects involving the provision of integrated services for large blue-chip companies. * Personnel's websites, combined with well-trained consultants, are able to offer improved services to both candidates and prospective employers. Ronnie Frost, Chairman, commenting on the results said: 'It has been an exciting half year for the Group. The rate of change is accelerating both within Hays and in the markets we serve. This offers us huge opportunities to supply innovative total solutions for our customers using the full range of our services and using the latest technology. We are determined to make the commitment necessary to exploit these opportunities to the full'. For further information, please contact: Ronnie Frost Chairman 01483 302203 Hays plc Graham Williams Executive Director 01483 302203 Hays plc Andrew Grant Brunswick Public Relations 020 7404 5959 CHAIRMAN'S STATEMENT Group Profit Earnings per share before exceptional items and amortising goodwill on acquisitions have risen by 13% to 5.2p in the half year to 31 December 1999. Sales increased by 17%, the majority of which was through organic growth. Group profit before tax, amortisation of goodwill and exceptional items has risen by 10% to £121.7m. During the period significant expense was incurred on new contract start-ups and further strengthening of management in continental Europe to enable us to respond to increasingly complex European tenders. Expense has also been incurred in developing technology for e- commerce solutions and on the sales and support team for Business Process Support. We continue to make acquisitions in the UK and on the Continent to further the strategic development of all three of our core activities. Interim Dividend The interim dividend is being increased by 15% to 1.15p and will be paid on 31 May 2000 to shareholders on the register on 2 May 2000. The Board's policy is to continue to provide shareholders with consistent dividend growth. Distribution Operating profit has decreased by 6% to £36.0m. Growth in Logistics was offset by reduced profits from Process Chemicals and the impact of the sale of Ingredients in October 1999 coupled with the effects of a difficult market in Germany for Logistics. UK Logistics has won business with new customers such as Kentucky Fried Chicken (KFC), Yates Wine Lodge and Haagen Dazs Cafe, for all of which we provide sophisticated total supply chain solutions. For some logistics customers Hays also provide integrated call centre and back office support and an e-commerce application for on-line order placement and inventory status using our Logistar supply chain management system. In the past 18 months B&Q have become one of our leading customers and an additional contract for their imported products supply chain commenced successfully pre- Christmas. The acquisition of EPS Ltd in January of this year further strengthened our position in the provision of complex added value logistics services to the fast growing mobile communications market. EPS is a specialist in this sector and has a number of high quality customers. The services provided include the management of repair centres and call centres, diagnostic testing, bar-coding, configuration and assembly. It is an excellent acquisition with a proven management team and it will enable the Group to support this high growth sector across Europe. The speed of change in the continental European market has accelerated dramatically as customers seek truly integrated solutions on a European scale. Industry consolidation continues, an example being the merger of Carrefour and Promodes, customers serviced by Hays in several countries, which will create the second biggest food retailer in the world. Against this dynamic background the speed of decision making and subsequent implementation has also increased. We have continued to invest in additional management and IT capabilities in support of these demands. The winning of the new five-year, £200m contract to manage the European parts network for Iveco was a major success, providing a platform on which we can build across Europe. The implementation has started well in the UK and France. In the UK Packaged Chemicals profits are ahead of last year despite lower sales prices for many products. The innovative facilities management contract with Viasystems has proved successful and a similar contract has recently been won with Chirex. Process Chemicals profits have been adversely affected by a cyclical weakness in the price of caustic soda. Commercial Continued growth both in the UK and on the Continent led to a 14% increase in operating profit to £39.5m. State of the art automation of the mail sortation process will lift volume growth constraints inherent in our current system and reduce costs, but the real advantages are the additional services and commercial benefits that we will be able to offer our customers. We are half way through our re- equipment programme and we are already attracting new streams of mail into the DX from major volume users, such as the banks. Our mail preparation, sortation and processing capacity now enables us to process all of a major user's mail output to give them maximum value. This involves streaming increased volume into our own network and preparing the residue in line with Post Office requirements to obtain the maximum discounts available for our customers. In France we have made good progress in merging the sales force and delivery networks of Colirail and France Partner though the merger costs are substantial and the full benefit will take time to be realised. The merged business is a market leader in early next-day delivery of small items with a focus on the optical, medical and IT sectors. In February we announced the acquisition of DUN and Driver Pack, establishing Hays as a market leader in Spain offering the same service to the same sectors. We are now able to offer an integrated European service to our customers through our own fast delivery networks in the UK, Ireland, France, Belgium and Spain and through alliances across the rest of Europe. Field Support Services, originally Partspeed, has attracted more new customers for its specialist service providing overnight delivery of spare parts for collection by field engineers. This fast and flexible service is ideally suited to the IT sector where customers require rapid access to spare parts in order to minimise business disruption. For orders placed as late as 6.00pm the previous evening, we deliver pre-8.00am to 5,300 engineers at 650 sites in the UK. Again we intend to develop this business across Europe. The development of Hays Business Process Support has continued. The new sales consultancy team is now up and running with work on a number of tenders in progress. Initial contracts from this substantial investment are anticipated early in the next financial year. A number of individual contracts have been won by the constituent businesses, notably a leading French cable company and a major UK bank. We have been particularly successful in the telecommunications sector, where in addition to the provision of call centres and billing services within Commercial, we also provide recruitment services in Personnel and supply chain management within Distribution for a broad range of mobile, cable and fixed line telecoms clients. The data management businesses of Hays Information Management continue to grow both in the UK and overseas. Active file management services, including electronic scanning, are proving very popular with customers who need to retain paper based records but who wish to maximise the efficiency of their own offices. Our own systems enable customers to recall individual files to their offices with a very rapid turnaround time. The development of Business Process Support has been accelerated by the acquisition of Redfern, an SAP Consulting Partner and specialist systems integration business. This business focuses on a limited number of specific sectors but also provides a broad range of IT skills to customers of Hays across the Group. Personnel Operating profit increased by 22% to £50.8m as our Personnel activity benefited from a unique combination of market leadership in specialist sectors and strong use of web technology. The Internet is becoming a valuable tool in matching the requirements of employers and candidates in all sectors though the greatest use currently is by Hays IT Personnel. Our websites receive more than 7 million 'hits' a year and the number of candidates and employers using the 'net' is rising very quickly. The websites are used for advertising jobs and receiving CVs. Some £8 million is being spent to further enhance Personnel's IT systems, to link the websites to our back office and to offer clients unique features. Consultants based in our 200 offices continue to be involved in ensuring that the candidate / job database remains up-to-date, assessing the skill and personality of candidates to produce a short-list for employers, selling job vacancies to the candidates and finally assisting our clients in negotiating salaries. Our largest business, Hays Accountancy Personnel, has grown its profits substantially in the UK and in Australia. The Group's position in the IT sector was strengthened by the acquisitions of Hutchinson Smith in the UK and MD Concept and Sedi in France. These businesses operate across Europe providing IT staff for software development, maintenance and consultancy projects to a blue-chip customer base with 3,000 IT contractors employed by Hays on behalf of clients. Hays Montrose has continued to benefit from the relative buoyancy of the construction and telecommunications industries. After opening its first office in Sydney last year, Montrose now has 3 offices in Australia and is earning good profits from its activities in that new market. As the burden of regulation on employers continues to increase, there is a growing willingness for businesses to outsource the entire management of their human resources. Hays Personnel Solutions is benefiting from this trend and is able to offer a range of services from ad hoc assistance to the full facilities management of customers' HR requirements, including training. We are confident that outsourcing in the HR field will be seen as increasingly attractive, particularly by smaller businesses which cannot justify maintaining the required level of expertise themselves. Balance Sheet and Cash Flow We have invested a total £56.9m in acquisitions since the start of the financial year, funded from free cash flow and borrowings. High levels of cash generation are a feature of all the Group's businesses and the balance sheet remains strong. Interest is covered 27 times by profit before interest and tax. Group Management and Staff The appointment of Robert Morgan as an Executive Director has further strengthened the Board and we were delighted that Bob Lawson, who has been a non-Executive Director since 1998, has agreed to become Deputy Chairman. These appointments will greatly assist the Group through the next phase of its growth. The pace of business change has never been quicker and the continuing success of the Group has been achieved through the willingness of our management and staff to adopt new technology and working practices at the same time as adapting to an increasingly international environment. The Board is very aware that flexibility will be the key to future success and will ensure that the training and development of our people remains a top priority. e-Commerce For the past two years the primary focus on e-commerce has been in the 'Business to Consumer' market. As the emphasis shifts to the 'Business to Business' market there will be substantial opportunities for the Hays Group and already we use the internet as a tool in many of our businesses. In pure e-commerce our view is that there will be many different e-market places, each focused on the specific needs of an industry sector or consumer group. With our existing sector-focused businesses and the Group's core skills in logistics, personnel, call centre management and business process support, we are ideally placed to offer our customers a comprehensive range of support services to enable them to deliver their e-commerce programmes. We are currently working with a number of customers to develop these and see this as being an area of potentially strong growth in the future. Prospects We continue to consolidate our position in our existing markets while seeking new opportunities that can further enhance the Group. Our new management team is now in place to lead the Group through a period of unprecedented change. Our strategic plans for future growth have never been more exciting. They link the existing strengths of Hays with investment in new technology and expertise to ensure that customers can rely upon Hays for imaginative solutions to help them grow their own businesses. Ronnie Frost Chairman RESULTS For the half year ended 31 December 1999 (In £'s million) Half year Half year to Increase Year to to 31 31 December % 30 June December 1998 1999 1999 (Unaudited) (Unaudited) Turnover Continuing Operations 1,017.2 871.7 1,865.5 Acquisitions 9.7 - - Discontinued Operations 2.9 5.2 10.3 ___________ ___________ _________ 1,029.8 876.9 +17% 1,875.8 Profit from operations Continuing Operations 125.0 113.4 243.4 Acquisitions 0.8 - - Discontinued Operations 0.5 1.3 2.6 ___________ ___________ _________ 126.3 114.7 246.0 Goodwill amortisation (4.0) (0.3) (3.6) ___________ ___________ _________ Operating profit 122.3 114.4 242.4 Exceptional items 0.9 - - Net interest payable (4.6) (4.3) (10.1) ___________ ___________ _________ Profit on ordinary activities before taxation 118.6 110.1 232.3 _________________________________________________________________________ Profit before taxation, 121.7 110.4 +10% 235.9 goodwill amortisation and exceptional items _________________________________________________________________________ Tax on profit on ordinary (31.6) (31.4) (65.1) activities ___________ ___________ _________ Profit on ordinary 87.0 78.7 167.2 activities after taxation Equity minority interests (0.2) (0.2) (0.5) ___________ ___________ _________ Profit for the period 86.8 78.5 166.7 Dividends (19.4) (16.5) (52.3) ___________ ___________ _________ Transferred to reserves 67.4 62.0 114.4 =========== =========== ========= Earnings per ordinary share 5.2p 4.6p +13% 9.9p before exceptional items and goodwill amortisation Basic earnings per share 5.1p 4.6p 9.7p Diluted earnings per share 5.0p 4.5p 9.6p Dividend per share 1.15p 1.00p 3.075p Interest cover 27X 27X 24X SUMMARISED BALANCE SHEET At 31 December 1999 (In £'s million) Half year to Half year to Year to 31 December 31 December 30 June 1999 1999 1998 Restated (Unaudited) Restated (Unaudited) Goodwill 197.4 104.2 139.0 Tangible fixed assets 472.7 462.7 475.3 Investments 33.2 24.3 17.7 Net current liabilities (32.0) (52.4) (74.3) Other creditors due after more than (55.7) (37.8) (42.0) one year Provisions for liabilities and (20.5) (13.1) (20.0) charges ----------- ----------- ----------- 595.1 487.9 495.7 =========== =========== =========== Called up share capital 8.6 8.6 8.6 Share premium account 360.7 348.6 356.7 Other reserves (23.2) (14.1) (18.5) Profit and loss account 22.5 (96.2) (49.6) ----------- ----------- ----------- Equity shareholders' interests 368.6 246.9 297.2 Minority interests 1.6 1.3 1.5 ----------- ----------- ----------- 370.2 248.2 298.7 Net borrowings 196.2 207.0 165.8 Finance leases 28.7 32.7 31.2 ----------- ----------- ----------- Net debt 224.9 239.7 197.0 ----------- ----------- ----------- 595.1 487.9 495.7 =========== =========== =========== Net debt as a % of shareholders' and minority interests 61% 97% 66% (In £'s million) Half year Half year to Year to to 31 31 December 30 June December 1998 1999 1999 Restated Restated (Unaudited) (Unaudited) Profit for the period 86.8 78.5 166.7 Dividends (19.4) (16.5) (52.3) ___________ ___________ ___________ 67.4 62.0 114.4 Exchange differences on translation (4.7) 3.3 (1.0) New share capital subscribed 4.0 3.8 7.8 Goodwill written back / (off) (net) 4.7 - (1.8) ___________ ___________ ___________ Net increase in shareholders' 71.4 69.1 119.4 interests Opening shareholders' interests 297.2 177.8 177.8 ___________ ___________ ___________ Closing shareholders' interests 368.6 246.9 297.2 =========== =========== =========== SUMMARISED CASHFLOW STATEMENT For the half year ended 31 December 1999 (In £'s million) Half year to Half year to Year to 31 December 31 December 30 June 1999 1998 1999 (Unaudited) (Unaudited) Operating activities Total operating profit 122.3 114.4 242.4 Depreciation and amortisation 29.9 22.7 52.0 Other operating activities (3.8) (1.0) (2.2) Increase in working capital (60.0) (46.8) (27.3) ___________ ___________ ___________ Net cash inflow from operating 88.4 89.3 264.9 activities Returns on investment and servicing (5.3) (4.3) (10.1) of finance Tax paid (2.0) (5.5) (53.8) Capital expenditure (31.5) (39.0) (87.2) ___________ ___________ ___________ Cash inflow before acquisitions and 49.6 40.5 113.8 disposals Acquisitions and disposals (31.1) (79.1) (106.9) Equity dividends paid (35.6) (30.5) (47.7) ___________ ___________ ___________ Cash flow before financing (17.1) (69.1) (40.8) Financing 13.7 (3.2) 26.4 ___________ ___________ ___________ Decrease in cash (3.4) (72.3) (14.4) =========== =========== =========== Reconciliation of net debt Decrease in cash (3.4) (72.3) (14.4) Cash flow from financing (25.3) 6.9 (11.1) ___________ ___________ ___________ Change in net debt resulting from (28.7) (65.4) (25.5) cash flows Borrowings acquired with (8.0) (13.0) (24.8) subsidiaries Exchange adjustment and other 8.8 (15.7) (1.1) ___________ ___________ ___________ Movement in net debt in the period (27.9) (94.1) (51.4) Opening net debt (197.0) (145.6) (145.6) ___________ ___________ ___________ Closing net debt (224.9) (239.7) (197.0) =========== =========== =========== NOTES 1 STATEMENT UNDER S240 - PUBLICATION OF NON STATUTORY ACCOUNTS The financial information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 30 June 1999. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 2 BASIS OF PREPARATION OF INTERIM FINANCIAL INFORMATION The interim financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 30 June 1999, with the exception that, following the issue of FRS 15, fixed assets previously stated at valuation have been restated at cost. This has resulted in a decrease in fixed assets at 30 June 1999 of £22.6 million, and has had no material impact on the profit and loss account in current or previous years. The balance sheets at 31 December 1998 and 30 June 1999 have been restated to reflect the change in policy. 3 BONUS SHARE ISSUE On 24 January 2000 a one for one bonus issue of shares took place. As a result, the Company's issued share capital doubled. Accordingly, the amount of earnings and dividend per share for the half year has been calculated as if the additional shares were in issue at 31 December 1999. For comparative purposes, prior half year and full year earnings per share and dividend have been restated using twice the actual number of shares and options in existence in the respective periods. 4 SEGMENTAL INFORMATION (In £'s Half year to Half year to Year to million) 31 December 1999 31 December 1998 30 June 1999 Turnover Operating Operating Operating (Unaudtd) Profit Turnover Profit Turnover Profit (Unaudtd) (Unaudtd) (Unaudtd) BY BUSINESS SECTOR Distribution 470.6 36.0 444.9 38.4 895.2 77.1 Commercial 212.1 39.5 143.2 34.7 345.0 77.3 Personnel 347.1 50.8 288.8 41.6 635.6 91.6 ______________________________________________________________ 1,029.8 126.3 876.9 114.7 1,875.8 246.0 Goodwill - (4.0) - (0.3) - (3.6) amortisation ______________________________________________________________ 1,029.8 122.3 876.9 114.4 1,875.8 242.4 ============================================================== BY GEOGRAPHIC AREA UK 668.0 99.5 581.8 90.1 1,214.5 193.4 Other EC 307.8 19.6 253.6 19.8 569.6 41.1 Rest of World 54.0 7.2 41.5 4.8 91.7 11.5 __________________________________________________________ 1,029.8 126.3 876.9 114.7 1,875.8 246.0 Goodwill - (4.0) - (0.3) - (3.6) amortisation __________________________________________________________ 1,029.8 122.3 876.9 114.4 1,875.8 242.4 =========================================================== 5 EXCEPTIONAL ITEMS (In £'s million) Half year to 31 December 1999 (Unaudited) Profit on disposal of business 3.5 Loss on disposal of fixed assets (2.6) _____________ 0.9 ============= The profit on disposal of business arises on the sale of the animal feed ingredients operations. The cash effect of the disposal was a receipt of £17.7 million. The loss on disposal of fixed assets relates to the disposal of superceded IT assets. 6 EARNINGS PER SHARE Earnings per share is based on profits from ordinary activities after taxation and minority interest of £86.8m and a weighted average of 1,699.7 million shares. To enable comparisons with previous periods, earnings per share has also been calculated before goodwill and exceptional items using earnings of £88.7m. The weighted average number of shares in issue excludes shares held by the Hays Employee Share Trust Ltd and the QUEST (Hays plc Qualifying Employee Share Ownership Trust). The dilution effect of share options issued to employees but not yet exercised is 27.8 million shares and the diluted earnings per share is 5.0p. Earnings per share have been adjusted to give a consistent basis for comparison following the one for one bonus share issue on 24 January 2000. 7 DIVIDENDS Half year Half year Year to to 31 to 31 30 June December December 1999 (pence) 1999 1998 (Unaudited) (Unaudited) Interim - pence per ordinary share 1.15 1.00 1.000 Final - pence per ordinary share - - 2.075 1.15 1.00 3.075 (In £'s million) Interim 19.4 16.5 16.5 Final - - 35.8 19.4 16.5 52.3 Dividends per share have been adjusted to give a consistent basis for comparison following the one for one bonus share issue on 24 January 2000. 8 PROVISIONS FOR LIABILITIES AND CHARGES (In £'s million) Pensions Deferred Property Deferred Other Total Employee Taxation Benefits At 1 July 1999 4.7 0.8 6.3 6.3 1.9 20.0 Exchange (0.1) - (0.1) (0.2) (0.1) (0.5) adjustments Charged / (credited) to P&L 0.4 - 0.1 1.4 0.1 2.0 account Disposals - - - (0.1) - (0.1) Utilised - - (0.8) (0.1) - (0.9) _____________________________________________________ At 31 December 1999 5.0 0.8 5.5 7.3 1.9 20.5 (unaudited) ====================================================== 9 RESERVES (In £'s million) Share Revaluation Other Profit & premium reserve reserves loss account At 1 July 1999 as previously 356.7 22.6 (18.5) (49.6) reported Elimination of revaluation - (22.6) - - surplus __________________________________________ At 1 July 1999 as restated 356.7 - (18.5) (49.6) Translation differences in respect of foreign - - (4.7) - subsidiaries Shares allotted on the 4.0 - - - exercise of options Transferred from profit and - - - 67.4 loss account Goodwill written back on - - - 4.7 disposal __________________________________________ At 31 December 1999 360.7 - (23.2) 22.5 (unaudited) ========================================== The revaluation surplus has been eliminated following the decision to restate fixed assets at cost, as permitted by FRS 15. 10 ACQUISITIONS The following acquisitions were completed in the half year: Sedi Participations SA 29 October 1999 Hutchinson Smith Ltd 1 November 1999 Cannon Couriers Ltd 2 November 1999 Roozen & van Hoof Groep BV 12 November 1999 MD Concept SA 15 November 1999 The assets acquired are set out below: (In £'s million) Fair values acquired (Unaudited) Tangible fixed assets 2.6 Debtors 24.6 Cash 0.8 Creditors and provisions (19.5) Borrowings and finance leases (8.0) Net assets acquired 0.5 Goodwill 66.3 66.8 Consideration Cash 43.5 Loan notes issued 2.0 Deferred consideration recognised 21.3 66.8 11 MOVEMENT IN NET DEBT (In £'s million) Cash Debt Net Debt At 1 July 1999 77.5 (274.5) (197.0) Foreign exchange movements (1.8) 10.6 8.8 Movement during year (3.4) - (3.4) Borrowings repaid - 38.4 38.4 Borrowings raised - (63.7) (63.7) Borrowings acquired - (8.0) (8.0) At 31 December 1999 (unaudited) 72.3 (297.2) (224.9) Cash comprises cash at bank and in hand, less overdrafts. Debt includes borrowings and finance lease liabilities.

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