Hays profit warning
Thursday October 31, 12:49 PM
Jobs firm Hays profit warning hits shares
By Victoria Cutler
LONDON, Oct 31 (Reuters) – UK recruitment and logistics firm Hays Plc (LSE: HAS.L – news – msgs) warned investors on Thursday full-year profits would not meet market forecasts as business confidence soured and its prospects worsened, news that hacked a quarter off its value.
The company, which provides express mail delivery, document storage, goods distribution and staff recruitment, said it expected results for the half year and full year to be 10 to 15 percent less than analysts' consensus estimates.
"The anticipated pick-up in trading for September and October has not occurred," it said in a statement.
Analysts had been expecting pre-tax profit before goodwill amortisation of 222 million pounds ($346 million) for the full year that started in July and 103 million pounds for the first half.
Hays's shares fell 26 percent to a seven-year low of 80 pence before recovering a little to be 20 percent lower at 88-1/4p by 1220 GMT, giving it a market value of about 1.53 billion pounds.
Its personnel division was trading in line with expectations but could struggle in the second half, with current market conditions likely to delay recovery.
Amanda Forsyth, a fund manager at Standard Life Investment which owns a 1.4 percent stake in Hays, said the profit warning was not altogether surprising.
"I think the difficulty has been with this business that they are increasingly unable to demonstrate competitive advantage," she said.
Schroder Salomon Smith Barney analyst Adrian Cattley said the warning had shown that the business was more economically sensitive than investors and analysts had thought.
STRATEGY IN PLACE
Hays Chairman Bob Lawson said he believed the company's long-term prospects were unchanged, despite the short-term difficulties that had led to the profit warning. He said the warning did not bring into question the firm's strategy.
"What we've then done is tried to look at our short-term prospects and that has led to today's statement. There's absolutely no change in the long-term prospects," he said.
Lawson said every unit was feeling the pain of economic downturn, with no indicators anywhere of markets picking up.
"If it was something targeted in one division, you'd deal with it and you'd never know about it. It is more a general malaise."
Finance Director Neil McLachlan told analysts and investors on a conference call the firm would still seek to maintain dividend growth as it believed the medium to long-term outlook was unchanged.
Scottish Widows fund manager Graham Campbell, who holds about four percent of Hays, said he thought the shares were attractive at this level, given the dividend yield, but he was disappointed by the news on trading.
Hays said it would prioritise efforts to sell off some less-profitable parts of its mail and logistics businesses, but Lawson conceded that this was not an easy time to be selling.
Lawson said some jobs would go as part of moves to reduce costs but was unable to say how many.
The announcement came the day before Colin Matthews takes the helm as chief executive and follows warnings last year that profits would be below expectations.
Matthews was appointed last month after a 16-month search by the company, during which it was without a full-time head.
Analysts expect him to oversee changes to Hays's conglomerate structure. Its main divisions currently include recruitment, logistics, commercial and mail delivery.
Hays counts Deutsche Bank (Xetra: 514000.DE – news) , JP Morgan Chase and supermarket group J. Sainsbury (LSE: SBRY.L – news – msgs) among its customers. (Additional reporting by F. Brinley Bruton and Rex Merrifield)
INDEPENDENT (LONDON, UK) 1st November 2002
HAYS PROFIT WARNING SPARKS TALK OF BREAK-UP
HAYS, THE business services company, shocked the City yesterday with an unexpected profits warning that knocked nearly 20 per cent off its shares.
The group, whose shares had already more than halved this year, admitted that a further downturn in its key markets meant underlying full and half-year results would be 10 to 15 per cent below analysts' forecasts.
The latest warning put the logistics-to-personnel group in danger of being relegated from the FTSE 100 list of Britain's top companies. It also made the group more vulnerable to a break-up, analysts said. Hays' shares fell 20.75p to 89.75p, giving it a valuation of pounds 1.55bn.
The group, which will today greet the long-awaited arrival of its new chief executive, Colin Matthews, blamed the downbeat statement on the lack of anticipated recovery after the quiet summer months.
"It's the first time in our [30-year] history that we haven't seen an uplift in September and October," Bob Lawson, the chairman and acting chief executive, said. "We can't find any sign of a pick up in any of our markets or any of our geographies. If anything, Germany is getting worse."
Mr Lawson has been running Hays since its former chief executive, John Coles, was ousted after a profit warning in June 2001. Mr Lawson had expected to become non-executive chairman when Ronnie Frost, the group's founder and former chairman, retired 15 months ago.
While the City has long been braced for a further downturn in the group's personnel division, yesterday's shock announcement concerned its logistics businesses.
Hays said problems with its mail operations had been caused by a significant increase in competition from Royal Mail. "It feels very personal," Mr Lawson said, describing how recent advertising by Royal Mail had been directly targeted two areas Hays was developing. These were business- to-business mail in the optical market and tracked mail, where a special computer system can allow customers to follow their parcels at every stage of its delivery.
"We're all geared up to do that but we're not licensed, so we're watching the depreciation charges mount. [Royal Mail] has the licences and we can't compete," he added. Hays does not expect to receive its licence until January at the earliest.
UBS Warburg, the company's house broker, slashed its pre-tax profit forecast from pounds 224.5m to pounds 190.5m. The bulk of this downgrade was directly due to the problems with its mail division. "It is difficult to see where mail's historically very high levels of profitability will trough, given the recent competitive pressures and signs of volumes easing," analysts at UBS Warburg said.
Analysts said that yesterday's trading blow made a break-up of the group more likely. Adrian Cattley, at Schroder Salomon Smith Barney, added: "I think the difficulty has been with this business that they are increasingly unable to demonstrate competitive advantage."
Neil McLachlan, the group's finance director, said Hays would still seek to maintain dividend growth as it believed the medium to long-term outlook was unchanged.
The company said it was continuing to "aggressively" reduce costs to match the unexpectedly low volumes. This is expected to lead to some job cuts, although no details were available yesterday. Hays is also prioritising efforts to sell less profitable parts of its mail and logistics businesses.
Mr Lawson said conditions in its staffing division, which includes Manpower and Adecco, were stable. However, the risk remains that an anticipated upturn in 2003 will not occur.
The unscheduled trading update came one month after Hays' full-year results and followed a quarterly review.
The surprise warning is Hays' third in two years and comes after Mr Lawson vowed in September 2001 that the group would never shock the City with a warning again.
