2nd Sep 2008 07:00
Preliminary results for the year ended 30 June 2008
OUTSTANDING INTERNATIONAL GROWTH & EPS UP 24%**
Year ended 30 June Actual LFL* (in ‚£'s million) 2008 2007 growth growth Net fees 786.8 633.6 24% 19%
Operating profit from continuing activities** 253.8 216.1 17% 13%
Cash from operations 256.0 232.1 10% Profit before tax 264.4 211.7 25%
Profit before tax (before exceptional items)** 249.1 211.7 18%
Basic earnings per share** 12.59p 10.19p 24% Dividend per share 5.80p 5.00p 16%
* LFL (like-for-like) growth represents organic growth for continuing activities at constant currency, pre exceptional items. No adjustment is made for the one additional trading day in 2008
** continuing activities only, pre exceptional items
Financial highlights
- Strong like-for-like net fee growth of 19% and operating profit growth of 13%*
- Earnings per share up 24%** and dividend per share up 16%
- Excellent cash flow from operations of ‚£256.0 million (101% of operating profit)
- Strong balance sheet position with net debt of ‚£81.1 million
Operational highlights
- International business increased net fees and operating profit by 40%* and now represents 42% of Group net fees
- Temporary placement net fees up 14% and permanent placement net fees up 24%*
- Performance of UK business impacted by deteriorating market conditions in second half
- Increased investment in key efficiency projects, including automating back office functions and upgrading our front office technology
Commenting on these results, Alistair Cox, Chief Executive of Hays, said:
"This has been an excellent year for Hays. We have delivered record profits andcash flow, achieved strong growth and made significant progress in our strategyof diversifying our business across geographies and sectors. Despite clearsigns of tightening economies in the latter part of the year, we delivered 24%growth in net fees (19% on a like-for-like basis*) and 17% growth in operatingprofit (13% on a like-for-like basis*).The International performance has been outstanding with 14 countries achievingorganic growth in net fees of more than 40%*. In Australia & New Zealand, weoutperformed the market by a considerable distance across all major specialismsand sectors. In Asia, we more than doubled the size of our business. InContinental Europe & Rest of World, we took advantage of significant structuralgrowth in the market by opening operations in 13 new cities and rolling out newspecialisms in 13 countries. Overall, our International business grew net feesand operating profit by 40%* and now represents 42% of the Group's net fees. Currently, in the United Kingdom demand for temporary placements has flattenedout and we are experiencing falling demand for permanent placements. InAustralia, we are seeing good growth in demand for temporary placements butdemand for permanent placements has levelled off. In both these countries ourpriorities are focused on cost control and maximising profitability. In most ofthe other countries in which we operate, we are currently seeing strong growthin demand for our services. Our aim is to create the leading global player in the specialist recruitmentindustry. Although conditions in a number of our markets are likely to bechallenging in the short term, we firmly believe the longer term potential tosignificantly grow our business around the world and across multiplespecialisms is substantial. To deliver this long term goal whilstsimultaneously dealing with current market trends, we will continue to run ourbusiness with a focus on operational efficiency, cost control and cashgeneration, combined with a targeted approach to investment in areas whichoffer attractive returns." EnquiriesHays plc Paul Venables Finance Director + 44 (0) 20 7383 2266 Martin Abell Investor Relations + 44 (0) 20 7383 2266 Brunswick Gill Ackers + 44 (0) 20 7404 5959 Catherine Colloms Results presentation webcastThe preliminary results presentation at 9:00am GMT on 2 September 2008 will beavailable as a live webcast on our website, www.haysplc.com, and a recordingwill also be available on our website.
Cantos interviews
Interviews with Alistair Cox (Chief Executive) and Paul Venables (Finance Director) by Cantos will be available on our website, www.haysplc.com, on 2 September 2008.
Reporting calendar
Trading statement for quarter ending 30 September 2008 9 October 2008
Trading statement for quarter ending 31 December 2008 8 January 2009
Interim results for 6 months ending 31 December 2008 26 February 2009
Trading statement for quarter ending 31 March 2009 9 April 2009
Trading statement for quarter ending 30 June 2009 9 July 2009
Note to editors
Hays plc is the leading global specialist recruitment group. It is market leader in the UK and Australia, and one of the market leaders in Continental Europe. The Group employs 8,872 staff operating from 393 offices in 27 countries across 17 specialisms. For the year ended 30 June 2008:
the Group had revenues of ‚£2.5 billion, net fees of ‚£786.8 million and operating profit before exceptional items of ‚£253.8 million;
the Group placed around 80,000 candidates into permanent jobs and around 300,000 people into temporary assignments;
the temporary placement business represented 49% of net fees and the permanent placement business represented 51% of net fees.
Chairman's statement
Hays has achieved another strong financial performance with 24% growth in basicearnings per share** against a weakening economic backdrop. It has also been anexciting year for Hays during which Alistair Cox joined as Chief Executivefollowing Denis Waxman's retirement. This transition was extremely smooth and,since his appointment, Alistair has built on Denis's legacy. He has considerablystrengthened his Management Board, taken personal responsibility for the UnitedKingdom & Ireland business and continued the development and diversification ofour International business.It has been a year of significant progress for Hays. In the United Kingdom &Ireland we are refining the way we manage the business, automating manyprocesses, improving working practices and upgrading the technology we use.Whilst it will take time for these changes to convert into financialperformance, particularly given the current market environment, these actionswill considerably strengthen the business for the long term. Meanwhile, theInternational business achieved outstanding growth underlining the greatopportunities available to Hays worldwide and our capability to capitalise onthese opportunities. Very few businesses have achieved such strong growthacross so many countries in specialist recruitment.
Dividend
Our dividend policy is designed to support a sustainable dividend across theeconomic cycle whilst also delivering a progressive dividend during periods ofgrowth. In line with this policy, the Board is recommending a final dividend of3.95 pence per share, which would bring the full year dividend to 5.80 penceper share, representing an increase in the full year dividend of 16% over 2007.People
As a Board, and as individuals, we have visited many of our operations in the United Kingdom and the International business during the year. During these visits, we continue to be impressed with our teams' commitment and absolute client and candidate focus. I do wish to recognise their achievement and to reinforce the Board's commitment to continuing to make their roles more fulfilling and more effective.
Across the world we have an experienced management team, leading market positions, a highly cash generative business, a diversified portfolio and a flexible cost base. This solid platform provides us with both the flexibility in the short term to deal with more challenging economic conditions and the capability over the long term to capitalise on the substantial structural growth in specialist recruitment markets.
Bob LawsonChairman2 September 2008 Executive review
Summary profit and loss statement
Year ended 30 June Growth (in ‚£'s million) 2008 2007 Actual LFL* Turnover 2,540.0 2,110.2 20% 16% Net fees Temporary 385.2 324.1 19% 14% Permanent 401.6 309.5 30% 24% Total 786.8 633.6 24% 19% Operating profit** 253.8 216.1 17% 13% Conversion rate 32.3% 34.1% Temporary margin*** 18.0% 18.0% Temporary fees as % of total 49% 51%
Period end consultant headcount**** 5,798 5,022 15%
15%
* LFL (like-for-like) growth represents organic growth for continuing activities at constant currency, pre exceptional items. No adjustment is made for the one additional trading day in 2008
** continuing activities only pre exceptional items
*** temporary margin is calculated as temporary placement net fees divided by temporary placement revenue
**** the increase in consultants is shown on a closing basis, comparing 30 June 2008 versus 30 June 2007
Group turnover increased by 20%, net fees increased by 24% (19% on alike-for-like basis*) and operating profit** increased by 17% (13% on alike-for-like basis*). The results were modestly enhanced by the acquisition ofJames Harvard and the disposal of a non core business in France in 2007, whichtogether had the net effect of increasing net fees by ‚£9.4 million andoperating profit by ‚£1.4 million. Favourable exchange rate movements,particularly the appreciation in the Australian dollar and Euro, increased netfees by ‚£20.4 million and operating profit by ‚£7.8 million. Our excellent fee growth in the period has been driven by our investment in thebusiness and strong demand in our markets, particularly in the first half.Whilst the economic cycle will always be the most important short terminfluence on the performance of our business, there are significant long termstructural changes driving demand in specialist recruitment markets. These longterm drivers include deregulation in the labour markets, particularly inContinental Europe, increasing awareness and willingness to use specialistrecruitment services, people moving jobs more frequently and demographicchanges. In addition, the temporary placement market benefits from a long termtrend of increasing demand from both candidates and clients for flexibleemployment. We achieved a strong performance in our permanent placement businesses acrossall regions in the first half of the year benefiting from continued investmentin consultants and a shortage of highly skilled candidates. However, the growthrate slowed markedly in the second half in the United Kingdom & Ireland andAustralia & New Zealand as a result of the wider economic issues starting toimpact our markets. Overall, net fees in the permanent business, representing51% of Group net fees, grew by 24%, with permanent placement volumes increasingby 17% and average fees per placement increasing by 6% compared to last year*.The temporary placement business, representing 49% of Group net fees, hadstrong and broadly consistent growth throughout the year increasing net fees by14% driven by volume and mix growth*. The Group temporary margin was the sameas last year at 18.0%*** with a decrease in the United Kingdom & Ireland offsetby an increase in the margin in the International business. The contrastingtrends in the permanent and temporary placement markets during the yearunderline the advantage of having market leading positions in both markets. The Group's conversion rate, which is the proportion of net fees converted intooperating profit, decreased from 34.1% last year to 32.3% due to the reductionin the conversion rate in the United Kingdom & Ireland.
Investment
We have invested significantly in the business during the year. We increasedthe number of consultants by 15% compared to last year, with the net increasebeing in the International business. We added 19 International offices to thenetwork, we expanded into Hungary and Denmark and we rolled out new specialismsin 17 countries. Number of offices 30 June 2007 opened (net) 30 June 2008 United Kingdom & Ireland 257 (2) 255 Asia Pacific 47 6 53 Continental Europe & RoW 72 13 85 Group 376 17 393 In the United Kingdom & Ireland we achieved good net fee growth particularly inmany of the newer specialisms, and we commenced projects to improve our backoffice efficiency and front office productivity. In Australia & New Zealand, wecontinued to develop our newer specialisms and strengthened our market leadingposition with a market-beating performance. In Asia, we continued to buildcritical mass in the major cities increasing net fees by more than 100%. InContinental Europe, we significantly increased our presence in major cities,and rolled out our network into new cities, with the objective of securingmarket leading positions in the countries in which we operate.The Group now employs 8,872 staff (2007: 7,753), operating from 393 offices(2007: 376) in 27 countries (2007: 25) across 17 specialisms (2007: 17). Webelieve this global network represents an excellent platform for continuing theGroup's development. United Kingdom & Ireland Year ended 30 June Growth (in ‚£'s million) 2008 2007 Actual LFL* Net fees Accountancy & Finance 178.0 164.4 8% 8% Construction & Property 118.6 111.8 6% 6% Information Technology 33.3 31.5 6% 5% Other Specialist Recruitment Activities 123.0 109.4 12% 8% Total 452.9 417.1 9% 7% Operating profit Accountancy & Finance 65.6 67.6 (3)% (3)% Construction & Property 41.0 44.2 (7)% (8)% Information Technology 11.2 11.2 0% 0% Other Specialist Recruitment Activities 19.5 17.8 10% 6% Total 137.3 140.8 (3)% (3)% Conversion rate 30.3% 33.8%
Period end consultant headcount**** 3,128 3,116 0%
0%
Division as % of Group net fees 58% 66% In the United Kingdom & Ireland, net fees increased by 9% (7% on alike-for-like basis*) to ‚£452.9 million and operating profit growth decreasedby 3% (3% on a like-for-like basis*) to ‚£137.3 million. The difference betweenheadline growth and like-for-like growth was due to the acquisition of JamesHarvard, and the appreciation of the Euro positively impacting the result fromIreland. Overall the result reflects good growth in the temporary placementbusiness offset by a weaker performance in the permanent placement businesswhich was impacted by a marked slowdown in activity in the second half.The Accountancy & Finance business had solid fee growth taking advantage ofgood market conditions in the first half of the year, before seeing a slowdownin market growth towards the end of the year. Construction & Property, whichserves both the construction and "built" environment sectors, achieved stronggrowth in the first half but had an increasingly difficult second half as aresult of a marked slowdown in construction activity in the sector. InformationTechnology made progress finishing the year with better fee momentum. The OtherSpecialist Recruitment Activities which cover 13 specialisms and now represent27% of United Kingdom & Ireland net fees, achieved good growth overall.Education, Human Resources, Purchasing, Sales & Marketing, and Retail achievedexcellent growth, collectively increasing net fees by 21%. However, asexpected, City related activities recorded weaker performances.As previously referred to in the interim statement, profit in the UnitedKingdom & Ireland has been affected by the reduction in the temporary businessmargin that occurred last year, primarily in the public sector and the impactof legislative changes affecting the status of temporary workers in sectors inwhich managed service companies operate. These factors reduced operating profitby around ‚£6 million in the year. Investment in the IT infrastructure, as partof our ongoing project to improve our use of technology, reduced operatingprofit by around ‚£3 million, with most of the impact being in the second half.Additionally, the slowdown in growth in the second half of the year,particularly in Construction & Property and Accountancy & Finance, put furtherpressure on the conversion rate. Overall, the conversion rate declined from33.8% last year to 30.3% reflecting a continuing decline in the second half.We have taken action to address the 10% reduction in operating profit thatoccurred in the second half of the year in the United Kingdom & Ireland. InFebruary, Alistair Cox, the Group Chief Executive Officer, took over theleadership of the United Kingdom & Ireland business. Subsequently, we have cutour cost base including reducing headcount by 7% in the second half. To improveefficiency,we are automating our back office functions and this project isprogressing well with expected completion in June 2010. We are taking measuresto improve front office productivity, including the development of bestpractice across the business and improved use of technology to reduce theadministrative burden on consultants. We are also examining ways to makefurther savings through improved procurement. We are also developing ouraccount management capability to better service our major clients and increaseour share of their spend on recruitment across multiple specialisms. We havealso directed resources towards our public sector clients and this has yielded15% growth in our public sector net fees in the second half.
In view of the more challenging market conditions in the United Kingdom & Ireland, we will continue to be extremely focused on cost control, maximising productivity, and disciplined pricing.
Asia Pacific Year ended 30 June Growth (in ‚£'s million) 2008 2007 Actual LFL* Net fees 176.2 114.0 55% 38% Operating profit 83.4 54.2 54% 39% Conversion rate 47.3% 47.5%
Period end consultant headcount**** 1,255 915 37%
37%
Division as % of Group net fees 22% 18% In Asia Pacific, our businesses continued their excellent track record in boththe permanent and temporary placement markets. Net fees increased 55% (38% on alike-for-like basis*) to ‚£176.2 million and operating profit increased 54% (39%on a like-for-like basis*) to ‚£83.4 million. The difference between headlinegrowth and like-for-like growth was due to the appreciation in the Australiandollar and the 2007 acquisition of James Harvard in Japan. We increased thenumber of consultants by 37% compared to last year, with this increase beingweighted towards the first half of the year. The conversion rate remainedbroadly unchanged at 47.3% (2007: 47.5%).In Australia & New Zealand, our market leading businesses recorded excellentperformances across all of their specialist activities and regions, increasingnet fees by 36% compared to last year*. The temporary placement business inAustralia & New Zealand achieved consistently excellent growth across the year.The permanent placement business started the year strongly but the growth rateweakened across the second half, with fee growth in the second half beingdriven by more favourable mix. By sector, Accountancy & Finance increased netfees by 31%; Construction & Property increased net fees by 38%; Resources &Mining, created five years ago and now our third largest specialism, increasednet fees by 31%; and Information Technology increased net fees by 47%*. Amongthe other specialisms, we increased net fees by more than 50% in Education,Executive, Healthcare, Human Resources, Legal, Logistics, Oil & Gas,Pharmaceutical and Sales & Marketing*. In addition, we opened further officesin Queensland, Victoria and New Zealand.The Asian markets represent a source of substantial long term opportunity forus and during the year we continued our strong progress in the regionincreasing net fees by 100%*. In Japan, we began our geographical expansion byopening in Osaka and we continued the roll out of our Accountancy & Finance,Construction & Property and Pharmaceutical specialisms. Our new business inSingapore had a fantastic year achieving breakeven within eight months ofopening, and is now rapidly growing profits. Hong Kong performed significantlyahead of our expectations, and we have continued the development of ourbusiness across China.
Continental Europe & Rest of World ('RoW')
Year ended 30 June Growth (in ‚£'s million) 2008 2007 Actual LFL* Net fees 157.7 102.5 54% 43% Operating profit 33.1 21.1 57% 44% Conversion rate 21.0% 20.6%
Period end consultant headcount**** 1,415 991 43%
43%
Division as % of Group net fees 20% 16% The Continental Europe & RoW division continued its outstanding progressincreasing net fees by 54% (43% on a like-for-like basis*) to ‚£157.7 millionand operating profit by 57% (44% on a like-for-like basis*) to ‚£33.1 millioncompared to last year. The difference between headline growth and like-for-likegrowth was due primarily to the appreciation of the Euro and the 2007acquisition of James Harvard. We have invested significantly in consultants,increasing the number of consultants by 43% compared to last year, with thisincrease being weighted towards the first half of the year. The conversion ratecontinued to improve, increasing from 20.6% last year to 21.0%, due to theincreased scale of the business.All countries contributed to the outstanding performance across both temporaryand permanent sectors with 12 countries delivering net fee growth of more than40% in the year*.Germany, representing 40% of the division's net fees, took advantage of growthin the market and further improved its market share, growing net fees by animpressive 43%*. This business is the market leader in the IT contractingmarket and is rapidly expanding its Accountancy & Finance, Legal and newlylaunched Pharmaceutical specialisms. Following new office openings during theyear, in Stuttgart and Nuremberg, our German business now has eight offices.
France, representing 19% of the division's net fees, grew net fees by 33%, increasing its presence in Paris and continuing its expansion into the provinces*. In line with the French specialist recruitment market, this business is predominantly focused on the permanent placement market and, following office openings in Rouen and Nancy, now has 17 offices.
Among the other countries in Continental Europe, we started operations in newcities in Spain, Italy, Switzerland, the Czech Republic and Poland, and welaunched operations in Hungary and Denmark. Following the acquisition last yearof James Harvard, we continue to roll out our Pharmaceutical specialism acrossEurope, introducing it into seven new countries during the year, bringing ourPharmaceutical presence up to 12 countries in the region. Elsewhere, we haveopened new offices in Canada and Brazil and our businesses in the UAE andBrazil continue to grow rapidly.
We see great opportunities for Hays in these markets, and we will continue to invest in staff and offices, where appropriate, to capitalise on these opportunities.
Exceptional itemsAs explained in note 4, there is an exceptional credit of ‚£15.3 millionincluded in the Consolidated Income Statement in 2008. This includes a ‚£22.0million exceptional credit as a result of the Group amending the terms of itsdefined benefit pension scheme. This amendment restricts the annual increase inpensionable earnings to the lower of inflation or 5%. Also during the year,the Group has initiated a Group-wide project to transform its ITinfrastructure, software and business operations. This has led the Board toconclude that the value of certain intangible and tangible assets that wereused in its operations are impaired and they have been written down by ‚£6.7million. There was no cash impact from the exceptional items.
Net finance charge
The average interest rate paid during the year ended 30 June 2008 was 6.1%(2007: 5.7%) generating a net interest payable on bank balances of ‚£7.2 million(2007: ‚£5.9 million). There was a net interest credit on pension obligations of‚£3.0 million (2007: ‚£1.9 million) due mainly to the higher asset position at 30June 2007 and a higher expected return on the Scheme assets. Offsetting thiswas a charge for the Pension Protection Fund Levy of ‚£0.5 million (2007: ‚£0.4million). Overall, the net finance charge for the year was ‚£4.7 million (2007:‚£4.4 million). It is expected that in 2009 the net finance charge will increaseto between ‚£10 million and ‚£12 million mainly due to the increase in thepension deficit and the lower expected rate of return on the Scheme assetswhich will adversely affect the IAS19 finance charge by around ‚£6 million. Thisincrease does not have a cash impact.
Taxation
Tax on continuing operations for the year was ‚£76.6 million, representing aneffective tax rate of 29.0% (2007: 30.0%). The reduction in the effective taxrate is primarily due to the recognition and utilisation of brought forward taxlosses in our French business and the 2% reduction in the United Kingdom taxrate which came into effect from 1 April 2008. In 2009, it is anticipated thatthe effective tax rate will remain around 29.0%.
Earnings per share
Basic earnings per share from continuing activities increased 24% to 12.59pence (2007: 10.19 pence)**. The improvement in earnings per share results fromstrong growth in profit before tax**, 18% ahead of last year, the reduction inthe effective tax rate and the favourable impact of the accretion from the
share buy-back programme. Cash flow and balance sheetCash flow in the year was excellent, with 101% conversion of operating profitinto operating cash flow (2007: 107%). Our track record of consistently strongcash flow performance reflects the highly cash generative nature of ourbusiness model and the emphasis that our management places on strong cashmanagement.Overall, net cash from continuing operations was ‚£256.0 million (2007: ‚£232.1million). Cash outflow from working capital was ‚£15.1 million, with workingcapital increasing at a lower rate than turnover. Tax paid was ‚£74.1 millionand net capital expenditure was ‚£20.8 million. ‚£74.0 million was paid out individends, ‚£7.2 million was paid out in net interest, and ‚£91.1 million wasused to buy back our own shares. At the year end, net debt was broadly at thesame level as last year end at ‚£81.1 million (2007: ‚£76.2 million). Thiscompares to bank facilities in place until February 2011 of ‚£460 million.
Capital structure and dividend
The priorities for our free cash flow are to fund Group development, paydividends and to buy back shares when appropriate. In view of the excellentresults, the Board is proposing to pay a final dividend of 3.95 pence pershare, which, if approved at the Annual General Meeting, will make a total of5.80 pence per share for the full year (2007: 5.00 pence). This represents a16% increase on last year. The recommended dividend will be paid on 21 November2008 to shareholders on the register at 24 October 2008. During the year, we purchased 73.2 million shares at a total cost of ‚£91.0million, representing 5% of the shares in issue at the start of the period.This share buy-back has all been funded by free cash flow. The Board believesthere are considerable benefits in maintaining a strong balance sheet and willadjust the level of the share buy-back accordingly. In the year ahead, it isexpected that the level of buy-back will be significantly lower than last year.So far in the current year, we have purchased 1.7 million shares at a cost of ‚£1.4 million. Since the buy-back commenced in November 2004, the total number ofshares bought back represents 22% of the shares that were in issue at the startof the programme.
Retirement benefit obligations
The Group's pension liability as at 30 June 2008 of ‚£88.1 million (‚£63.4million net of deferred tax) increased by ‚£44.6 million compared to 30 June2007 mainly due to a reduction in equity returns, a decrease in equity valuesand an increase in the long term inflation rate assumption. During the period,the company contributed ‚£7.3 million of cash into the defined benefit schemewhich included ‚£2.5 million to fund the deficit. The total cash contribution in2009 is expected to be around ‚£7 million, including a further ‚£1.2 million tofund the deficit.Current tradingCurrently, in the United Kingdom demand for temporary placements has flattenedout and we are experiencing falling demand for permanent placements. InAustralia, we are seeing good growth in demand for temporary placements butdemand for permanent placements has levelled off. In both these countries ourpriorities are focused on cost control and maximising profitability. In most ofthe other countries in which we operate, we are currently seeing strong growthin demand for our services.Our aim is to create the leading global player in the specialist recruitmentindustry. Although conditions in a number of our markets are likely to bechallenging in the short term, we firmly believe the longer term potential tosignificantly grow our business around the world and across multiplespecialisms is substantial. To deliver this long term goal whilstsimultaneously dealing with current market trends, we will continue to run ourbusiness with a focus on operational efficiency, cost control and cashgeneration, combined with a targeted approach to investment in areas whichoffer attractive returns.
Notes
* LFL (like-for-like) growth represents organic growth for continuing activities at constant currency. No adjustment is made for the one additional trading day in 2008
** continuing activities only pre exceptional items
*** the increase in consultants is shown on a closing basis, comparing 30 June 2008 versus 30 June 2007
**** the temporary placement gross margin is calculated as temporary placement net fees divided by temporary placement revenue
Treasury managementThe Group's treasury operations remain straight forward and uncomplicated withGroup operations financed by retained earnings and bank borrowings. The Grouphas a ‚£460 million revolving credit facility in place until February 2011 andit uses this facility to manage its day-to-day working capital requirements asappropriate. The Group's net debt position was ‚£81.1 million at 30 June 2008and this compares to a net debt position of ‚£76.2 million at 30 June 2007.
All
borrowings are raised by the Groups' UK based treasury department which manages the Group's treasury risk in accordance with policies set by the Board. The Group's treasury department does not engage in speculative transactions and does not operate as a profit centre.
Counterparty risk primarily arises from investment of any surplus funds. The Group restricts transactions to banks and money market funds that have an acceptable credit rating and limits exposure to each institution.
Principal risks facing the business
Macro economic environment
The performance of the Group has a very close relationship and dependence onthe underlying growth of the economies of the countries in which it operates.The Group strategy is to continue to grow the size of its Internationalbusinesses in the countries in which the Group currently operates and withinnew countries that the Group currently has no operations. This will reduce theGroup's exposure or dependence on any one specific economy. The Group has also expanded its business into countries where the specialistrecruitment markets are less developed and are therefore less dependent on theperformance of the country's underlying economy in the short-term.
Competitive environment
In the United Kingdom & Ireland and Australia & New Zealand, the markets forthe provision of permanent and temporary recruitment are competitive andfragmented. In these more developed markets, competitor risk manifests itselfin increased competition for clients and candidates and in pricing pressuresand during the year, in the United Kingdom, the Group experienced some marginpressure within its temporary business in the major specialist activities.In Continental Europe & Rest of the World and Asia (excluding Japan), themarkets for the provision of recruitment services remain less developed and themarket place is more fragmented, however, the markets in Continental Europe andAsia are developing quickly.
The Group's strategy is to rapidly grow our businesses in the International territories.
The Group's competitors in its markets range from large multi-nationalorganisations to small, boutique, privately owned businesses. The Group iscontinually subject to existing and new competitors entering into the marketsin which it operates. The competitive threat is from small start-up operationsto large multi-nationals as the costs of entry into the specialist recruitmentmarkets can be relatively low, although these costs have risen with theincreased levels of compliance required from local regulators and clients.
Commercial relationships
The Group benefits from close commercial relationships with key clients in boththe public and private sectors. Within the private sector the Group is notdependent on any single key client; however, the Group, like most companies isalways subject to the risk that a large customer might be unable to fulfill itsobligations to the Group, which might materially impact the Group's results. The public sector accounts for approximately 20% of the Group's total net fees.The public sector markets that the Group operates in include a large number ofnational and local government organisations.
Contractual risk
Clients increasingly require more complex levels of compliance e.g. referencechecking as part of their contractual arrangements. The Group takes itsresponsibilities seriously, such contracts may be allocated to dedicated teamsand audits performed to reduce the risk of non-compliance.The Group placing temporary workers represents a greater inherent risk thanpermanent placements. Wherever possible the contracts include clauses placingthe responsibility for supervision and control of the worker with the client,exclude any consequential loss and limit the Group's total liability under thecontract. The Group has clear guidance in place on approval of contractualterms and monitors the application thereof, especially any exceptions to ourstandard liability position and insurance protection which require GroupFinance Director approval.People
The business is reliant on the ability to recruit, train and develop people to meet the Group's growth strategy. The Group is focused on ensuring it has competitive pay structures which are linked to performance, a succession planning process and a process to develop talent to meet expansion needs.
In addition Management are focused on allocating resources to the best opportunities available.
Foreign exchangeThe Group has significant operations outside the United Kingdom and as such isexposed to movements in exchange rates. Currently, the Group does not activelymanage its exposure to foreign exchange risk by the use of financialinstruments. The impact of foreign exchange will become more important for theGroup as the scale of its international operations grow. In the current year,42% of total net fees were generated by the International businesses, of which36% was Euros or Australian dollar, and this is expected to increase in thefuture. The Group will continue to monitor its policies in this area.
Technology systems
The Group is increasingly reliant on a number of technology systems in providing its services to clients. These systems are housed in various datacentres and the Group has capacity to cope with a datacentre loss as a result of a significant event through the establishment of disaster recovery sites which are physically based in separate locations to the ongoing operations.
The Group is also reliant upon a number of important suppliers that provide critical information technology infrastructure. It continually monitors the performance and robustness of these suppliers to ensure business critical processes are safeguarded as far as is practicably possible.
The Group is in the process of upgrading some of its key operational andfinancial systems, such changes have an element of inherent risk, the Group hastaken steps to mitigate these risks via the governance structure in place,ensuring that the group has high quality project management and IT resourcesworking along side our operational managers on the projects, utilisation ofspecialist external resource and utilising a robust project management process.The Group will be monitoring this carefully across the life of the project.
Regulatory environment and legislative changes
The specialist recruitment industry is governed by an increasing level ofcompliance, which varies from country to country and market to market. TheGroup takes its responsibilities seriously, is committed to meeting all of itsregulatory responsibilities and continues to strengthen its internal controlsand processes with respect to legal obligations.As the employment laws are changed and harmonised in certain geographies, theybring with them new risks and opportunities. The temporary market is moreheavily regulated and changes in legislation e.g. changes in managed servicecompany legislation, the planned removal of the staff hire concession, changesto temporary worker rights can have an impact on the group profitability.
The Group ensures that its policies, processes and systems reflect best practice where possible and meet the legal requirements of the markets in which it operates.
Important noticeCertain statements in this preliminary announcement are forward lookingstatements. By their nature, forward looking statements involve a number ofrisks, uncertainties or assumptions that could cause actual results or eventsto differ materially from those expressed or implied by those statements.Forward looking statements regarding past trends or activities should not betaken as representation that such trends or activities will continue in thefuture. Accordingly, undue reliance should not be placed on forward looking
statements.CONSOLIDATED INCOME STATEMENTfor the year ended 30 June(In ‚£'s million) Note 2008 2007 TURNOVER Continuing operations 3 2,540.0 2,110.2 NET FEES Continuing operations 3 786.8 633.6
Operating profit from continuing operations before 253.8
216.1exceptional items Exceptional items 4 15.3 -
OPERATING PROFIT FROM CONTINUING OPERATIONS 3 269.1
216.1 Finance income 5 3.2 1.5 Finance cost 5 (7.9) (5.9) (4.7) (4.4)PROFIT BEFORE TAX 264.4 211.7 Tax 6 (76.6) (63.6)
PROFIT FROM CONTINUING OPERATIONS AFTER TAX 187.8
148.1
PROFIT FROM DISCONTINUED OPERATIONS 7 0.4
18.4
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 188.2
166.5
Earnings per share from continuing operations before
exceptional items - Basic 9 12.59p 10.19p - Diluted 9 12.53p 10.13p
Earnings per share from continuing operations
- Basic 9 13.37p 10.19p - Diluted 9 13.30p 10.13p
Earnings per share from continuing and discontinued
operations - Basic 9 13.40p 11.46p - Diluted 9 13.33p 11.39p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 30 June(In ‚£'s million) 2008 2007 Profit for the financial year 188.2 166.5
Currency translation adjustments taken to equity 25.4
(0.9)
Actuarial (losses)/profits on defined benefit pension scheme (71.2)
12.9
Tax on items taken directly to equity 19.9
(4.7)
Net (expense)/income recognised directly in equity (25.9)
7.3
Total recognised income and expense for the year 162.3
173.8
Attributable to equity shareholders of the parent 162.3
173.8 CONSOLIDATED BALANCE SHEETat 30 June(In ‚£'s million) Note 2008 2007 NON-CURRENT ASSETS Goodwill 168.9 157.7 Other intangible assets 5.4 4.3 Property, plant and equipment 32.2 25.2 Deferred tax assets 38.7 22.7 245.2 209.9 CURRENT ASSETS Trade and other receivables 442.3 375.7 Cash and cash equivalents 54.0 68.4 496.3 444.1 TOTAL ASSETS 741.5 654.0 CURRENT LIABILITIES Trade and other payables (306.5) (252.4) Current tax liabilities (29.7) (31.7) (336.2) (284.1) NON-CURRENT LIABILITIES Bank loans and overdrafts (135.1) (144.6) Trade and other payables (13.6) (19.6) Retirement benefit obligations 10 (88.1) (43.5) Provisions 11 (45.5) (50.2) (282.3) (257.9) TOTAL LIABILITIES (618.5) (542.0) NET ASSETS 123.0 112.0 EQUITY Called up share capital 14.7 15.7 Share premium account 369.6 369.6 Capital redemption reserve 2.7 1.7 Retained earnings (307.0) (288.7) Other reserves 43.0 13.7 TOTAL SHAREHOLDERS' EQUITY 123.0 112.0
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June(In ‚£'s million) Note 2008 2007
OPERATING PROFIT FROM CONTINUING OPERATIONS 269.1
216.1 Adjustments for: Exceptional items - non cash 4 (15.3) - Depreciation of property, plant and equipment 9.6
7.3
Amortisation of intangible fixed assets 1.7
0.4
Net movement in provisions (5.9)
(6.1)
Movement in employee benefits and other items 11.9 8.5 2.0 10.1
OPERATING CASH FLOWS BEFORE MOVEMENT IN WORKING 271.1
226.2CAPITAL Changes in working capital Increase in receivables (42.6) (38.9) Increase in payables 27.5 44.8 (15.1) 5.9 CASH GENERATED BY OPERATIONS 256.0 232.1 Income taxes paid (74.1) (70.7)
NET CASH FROM OPERATING ACTIVITIES 181.9
161.4 INVESTING ACTIVITIES Purchases of property, plant and equipment (14.8)
(12.3)
Proceeds from sale of property, plant and equipment 0.1
0.2 Purchase of intangible assets (6.7) (2.8)
Cash paid in respect of acquisitions made in previous -
(0.3)years Acquisition of subsidiaries - (22.8)
Sale of businesses and related assets - discontinued 0.6
0.8
Sale of businesses and related assets - continuing -
0.8 Interest received 3.2 1.5 NET CASH USED IN INVESTING ACTIVITIES (17.6) (34.9) FINANCING ACTIVITIES Interest paid (10.4) (5.9) Equity dividends paid (74.0) (65.5) Cash outflow in respect of share buy-back (91.1) (58.2) Purchase of own shares (0.7) (0.4)
Proceeds from share option exercises 2.8
3.8
(Repayment)/issue of loan notes (0.8)
0.2
(Decrease)/increase in bank overdrafts (8.7)
14.6
Additional pension scheme funding (2.5)
-
NET CASH USED IN FINANCING ACTIVITIES (185.4) (111.4)
NET (DECREASE) / INCREASE IN CASH AND CASH
EQUIVALENTS (21.1) 15.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12 68.4
52.8
Effect of foreign exchange rate changes 6.7
0.5
CASH AND CASH EQUIVALENTS AT END OF YEAR 12 54.0
68.4 NOTES TO THE ACCOUNTS
1. STATEMENT UNDER S240 - PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial statements contained in this preliminary announcement do notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The financial information is based on the statutory accounts for thefinancial year end 30 June 2008 and 30 June 2007. The financial statement for30 June 2008, upon which the auditors issued an unqualified opinion, that didnot contain a statement under Section 237 (2) or (3) of the Companies Act 1985,have yet to be delivered to the Registrar of Companies. The financialstatements for 30 June 2007 upon which the auditors issued an unqualifiedopinion, have been delivered to the Registrar of Companies.
2. BASIS OF PREPARATION
Whilst the financial information included in the preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The Company expect to publish full financial statementsthat comply with IFRSs in November 2008. The financial information included in this preliminary announcement has beenprepared using accounting policies consistent with those in the Group's lastpublished annual financial statements for the year ended 30 June 2007.
The consolidated financial statements have been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.
The consolidated financial statements have been prepared on the historical cost basis.
3. SEGMENTAL INFORMATION
Continuing operations comprise one class of business, the Specialist Recruitment activities. The Group operates in three identified geographical segments. These results by geography are shown below.
TURNOVER AND PROFIT FROM OPERATIONS(In ‚£'s million) 2008 2007
TURNOVER FROM CONTINUING OPERATIONS
United Kingdom & Ireland 1,571.5 1,413.7 Continental Europe & Rest of World 482.2 353.2 Asia Pacific 486.3 343.3 2,540.0 2,110.2
NET FEES FROM CONTINUING OPERATIONS
United Kingdom & Ireland 452.9 417.1 Continental Europe & Rest of World 157.7 102.5 Asia Pacific 176.2 114.0 786.8 633.6
OPERATING PROFIT FROM CONTINUING OPERATIONS
United Kingdom & Ireland Operating profit from continuing operations before 137.3 140.8exceptional items Exceptional items 15.3 - 152.6 140.8
Continental Europe & Rest of World 33.1
21.1 Asia Pacific 83.4 54.2 269.1 216.1
There is no material difference between the split of the Group's turnover by geographic origin and destination.
4. EXCEPTIONAL ITEMS
During the year the Group amended the terms of its defined benefit pensionscheme. This amendment restricts the annual increase in pensionable pay /qualifying earnings to the lower of inflation or 5%. The effect of this changeis a curtailment benefit which has been recognised in the Income Statement asan exceptional credit of ‚£22.0 million. Also during the year, the Group hasinitiated a Group-wide project to transform its IT infrastructure, software andbusiness operations. This has led the Directors to conclude that the carryingvalue of certain intangible and tangible assets that were previously used inits operations are impaired and they have been written down by ‚£6.7 million.The exceptional credit generated a tax charge of ‚£4.3 million.
There was no cash impact from the exceptional items.
5. FINANCE INCOME AND FINANCE COSTS
Finance income(in ‚£'s million) 2008 2007 Interest on bank deposits 3.2 1.5Finance costs(in ‚£'s million) 2008 2007
Interest payable on bank overdrafts and loans (10.4) (7.4)
Pension Protection Fund levy (0.5) (0.4) Net interest on pension obligations 3.0 1.9 (7.9) (5.9) Net finance charge (4.7) (4.4) 6. TAX
The tax charge for the year was based on the following:
(In ‚£'s million)
2008 2008 2008 2007 2007 2007 Continuing Discontinued Total Continuing Discontinued Total Current 71.8 0.2 72.0 69.7 (17.3) 52.4tax Deferred 4.8 - 4.8 (6.1) - (6.1)tax 76.6 0.2 76.8 63.6 (17.3) 46.3 7. DISCONTINUED OPERATIONS
The results of the discontinued businesses which have been included in the consolidated Income Statement, were as follows:
(in ‚£'s million) 2008 2007
Profit from disposal of business assets 0.6 1.1
Profit before tax 0.6 1.1 Tax (0.2) 17.3
Post tax profit from discontinued operations 0.4 18.4
The profit from disposal of business assets in the current year relates mainlyto the cash receipts from loan notes arising from the disposal of the Hays USHome Delivery business, previously fully provided against.The tax credit of ‚£17.3 million in the prior year was the result of a ‚£17.6million write-back of tax-related accruals that were established when the Groupcompleted the disposal of non-core activities between March 2003 and November2004 and in the light of subsequent events were no longer required, less a ‚£0.3million charge on other items. 8. DIVIDENDS
The following dividends were paid by the Group and have been recognised as distributions to equity shareholders in the year:
2008 2007 pence per ‚£ pence per ‚£ share million share million Previous year final 3.40 48.2 2.90 42.3dividend Current year interim 1.85 25.8 1.60 23.2dividend 74.0 65.5 The following dividends were proposed by the Group in respect of the accountingyear presented: 2008 2007 pence per ‚£ pence per ‚£ share million share million Interim dividend 1.85 25.8 1.60 23.2 Final dividend 3.95 54.4 3.40 48.2(proposed) 5.80 80.2 5.00 71.4
The final dividend for 2008 of 3.95 pence per share (‚£54.4 million) will be proposed at the AGM on 12 November 2008 and has not been included as a
liability as at 30 June 2008. The final dividend will be paid on 21 November 2008 to shareholders on the register at 5pm on 24 October 2008.
9. EARNINGS PER SHARE
For the year ended 30 June 2008
Weighted average Earnings number of Per share (‚£'s shares amount million) (million) (pence) Continuing operations before exceptional items: Basic earnings per share from continuing operations 176.8 1,404.1 12.59
Dilution effect of share options - 7.4 (0.06) Diluted earnings per share from
continuing operations 176.8 1,411.5 12.53 Continuing operations after exceptional items: Basic earnings per share from continuing operations 187.8 1,404.1 13.37
Dilution effect of share options - 7.4 (0.07) Diluted earnings per share from
continuing operations 187.8 1,411.5 13.30 Discontinued operations: Basic earnings per share from discontinued operations 0.4 1,404.1 0.03
Dilution effect of share options - 7.4 - Diluted earnings per share from
discontinued operations 0.4 1,411.5 0.03 Continuing and discontinued operations: Basic earnings per share from continuing and discontinued operations 188.2 1,404.1 13.40
Dilution effect of share options - 7.4 (0.07) Diluted earnings per share from continuing and discontinued operations 188.2 1,411.5 13.33
The weighted average number of shares in issue excludes shares held in treasury and shares held by the Hays Employee Share Trust Ltd and the Hays plc Qualifying Employee Share Ownership Trust.
Reconciliation of earnings (in ‚£'s million) Earnings
Continuing operations before exceptional items 176.8
Exceptional items (note 4) 15.3 Tax on exceptional items (note 4) (4.3) Continuing operations 187.8 For the year ended 30 June 2007
Weighted average Earnings number Per share (‚£'s of shares amount million) (million) (pence) Continuing operations before exceptional items: Basic earnings per share from continuing operations 148.1 1,453.2 10.19
Dilution effect of share options - 8.2 (0.06) Diluted earnings per share from
continuing operations 148.1 1,461.4 10.13 Continuing operations after exceptional items: Basic earnings per share from continuing operations 148.1 1,453.2 10.19
Dilution effect of share options - 8.2 (0.06) Diluted earnings per share from
continuing operations 148.1 1,461.4 10.13 Discontinued operations: Basic earnings per share from discontinued operations 18.4 1,453.2 1.27
Dilution effect of share options - 8.2 (0.01) Diluted earnings per share from
discontinued operations 18.4 1,461.4 1.26 Continuing and discontinued operations: Basic earnings per share from continuing and discontinued operations 166.5 1,453.2 11.46
Dilution effect of share options - 8.2 (0.07) Diluted earnings per share from
continuing and discontinued operations 166.5 1,461.4 11.39
10. RETIREMENT BENEFIT OBLIGATIONS
(In ‚£'s million)
2008 2007 Deficit in the scheme brought forward (43.5) (55.9) Current service cost (5.7) (7.1) Past service costs/curtailments (note 4) 22.0 - Contributions 7.3 4.7 Net financial return 3.0 1.9 Actuarial (loss)/gain (71.2) 12.9 Deficit in the scheme carried forward (88.1) (43.5) 11. PROVISIONS(In ‚£'s million) Property Deferred employee benefits Other TotalBalance at 1 July 2007 14.7 1.7 33.8 50.2 Exchange adjustments 0.5 - 0.7 1.2 Reclassification 5.0 - (5.0) - Utilised (2.3) - (3.6) (5.9) Balance at 30 June 2008 17.9 1.7 25.9 45.5 Property provisions are for rents and other related amounts payable on certainleased properties for periods in which they are not anticipated to be in use bythe Group. The leases expire in periods up to 2013.
It is not possible to estimate the timing of payments against the other deferred employee benefit provisions.
Other provisions comprise liabilities arising as a result of the business disposals and the Group transformation that concluded in 2004, including the following items: -
- Provisions of ‚£1.6 million (2007 - ‚£3.7 million) relating to restructuringcosts arising from the Group transformation. These provisions are expected tobe utilised over the next 24 months.
- Provisions of ‚£18.8 million (2007 - ‚£18.9 million) relating to possible warranty and environmental claims in relation to businesses disposed of. It is not possible to estimate the timing of payments against these provisions.
- After a detailed review of Other provisions the Directors have concluded that ‚£5.0 million of Other provisions is more fairly presented in the Property provisions.
12. MOVEMENT IN NET CASH / (DEBT)
(In ‚£'s million) 1 July Cash Exchange 30 June 2007 Flow Movement 2008
Cash and cash equivalents 68.4 (21.1) 6.7 54.0
Bank loans and overdrafts (144.6) 11.9 (2.4) (135.1)
(76.2) (9.2) 4.3 (81.1)
The table above is presented as additional information to show movement in net cash / (debt), defined as cash and cash equivalents less overdraft and bank loans.
13. CONTINGENT LIABILITIESIn June 2006, Hays was visited by the UK Office of Fair Trading ('OFT') as partof an investigation into possible breaches of competition law by Hays and otherrecruitment companies in the construction recruitment sector. The OFTinvestigation related to a small part of Hays' Construction & Propertybusiness. Hays is co-operating fully with the OFT under the OFT's leniencyprogramme and the Board believes that any financial impact of the matters underinvestigation will not be material to the Group.
14. POST BALANCE SHEET EVENTS
As part of the share buy-back programme, the Company has purchased an additional 1.7 million shares (held as treasury shares) for a total cost of ‚£ 1.4 million, after the year end.
There are no other post balance sheet events within the Group that require disclosure.
15. LIKE-FOR-LIKE RESULTS
Like-for-like results represent organic growth of continuing activities at constant currency.
For the year ended 30 June 2008 this is calculated as follows:
(In ‚£'s million) Net fees for the year ended 30 June 2007 633.6 Foreign exchange impact 20.4 Adjustment for fees from disposed of businesses (1.9) Net fees for the year ended 30 June 2007 at constant 652.1currency Fees generated from acquisitions 11.3 Fees generated from organic growth 123.4 Net fees for the year ended 30 June 2008 786.8Profit from operations for the year ended 30 June 2007 216.1 Foreign exchange impact 7.8 Adjustment for profit from disposed of businesses (0.4) Profit from operations for the year ended 30 June 2007 at 223.5constant currency Profit from exceptional items 15.3 Profit from operations generated from acquisitions 1.8 Profit from operations generated from organic growth 28.5 Profit from operations for the year ended 30 June 2008 269.1
vendorRelated Shares:
Hays