Hays interim leads to downgrading

HAYS, the business services group, yesterday turned in interim results at the bottom end of the City's expectations and saw its share price close at 227p, down 14p.

With pre-tax profits rising by 9 per cent to pounds 30.2m, analysts trimmed their full-year forecasts to between pounds 65m and pounds 68m. Previously they had looked for profits of up to pounds 75m.

The downgrading reflected a warning that opening a distribution depot for Waitrose four months early would cost pounds 1m in the second half, and fears that real recovery would come to Hays' core activities more slowly than expected.

Operating profits in distribution and commercial services in the six months to 31 December rose by 8 and 15 per cent respectively. Ronnie Frost, executive chairman, said he was delighted by the performance of Fril, a French distribution company bought for pounds 34m in June, even though it had lost around pounds 500,000 during the lorry drivers' blockade last summer. Fril has won new contracts with Nestle, worth Fr15m, Chambourcy and Yoplait.

Mr Frost, who was 'in an acquisitive mood' last year and anxious to expand further into Europe, said he was not going to rush into another acquisition by the year-end. 'It took us 18 months of talking to Fril before they decided that they wanted to join us. We're talking on other projects at the moment but we're in no hurry.'

He said a worldwide glut of caustic soda, plus an electricity bill of pounds 12m, up from pounds 8m, had caused profits in the chemical distribution division to decline slightly.

On the commercial side, Mr Frost said the group's express postal delivery operations and exploration services had proved successful in competitive markets.

The final element of the Hays tripod - personnel services, where profits plunged 59 per cent last year - had a mixed first half. Operating profit fell from pounds 2.5m to pounds 2.1m in the first three months, but the second quarter was better than the same period in the previous year.

Mr Frost said it was well-placed for recovery. 'It's a good business. On pounds 100,000 worth of revenue, pounds 70,000 goes straight to the bottom line. Some people have advised me to sell it but you sell at the top of the market, not the bottom . . . the great thing about a three-legged stool is that, however short one of the legs is, it'll never wobble.'

Gearing has risen from 21 to 32 per cent, but interest is covered 27 times. Earnings per share rose by 4 per cent to 4.9p and the interim dividend was increased by 13 per cent to 1.7p.