Recruitment helps to boost Hays 26%

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Hays, the business services group floated in 1989, continued its successful run yesterday with a 26-per-cent increase in pre-tax profits to pounds 110m for the year to June. The recruitment division, which includes the Hays Accountancy business, was the star performer with a 73-per-cent increase in profits.

The division has recovered from a slump in profits three years ago when it was hit by a combination of high costs and the impact of the recession. The division is benefiting from the trend towards short-term contracts resulting in a rising demand for temps.

Ronnie Frost, the chairman who led a management buyout in 1987, said the business was "going like a train". Costs have been cut and the company is operating with 25 per cent fewer staff than two years ago on sales that have doubled.

The logistics business which operates warehouse and distribution services to supermarket and manufacturing groups is also expanding. Profits rose 12 per cent to pounds 55m and the company is pursuing growth opportunities across Europe. After successful deals in France in 1992 and Germany in 1993, Mr Frost is looking to eastern Europe. The business has already started contracts in Poland and Moscow where it is specialising in food, DIY products and packaged chemicals.

At the end of June, Hays announced the pounds 15m acquisition of Jarlaud in France to link up with Hays' existing Fril business.

Operating profit at the commercial business, which operates postal and parcels services, rose 19 per cent to pounds 32.6m. Hays is continuing to rebrand its business. The old Britdoc business has been rebranded as Hays Document Exchange. It claims to be the UK's second-largest postal service after the Post Office, handling 85,000 parcels a night. New capacity has been added to the Hays Express business.

Mr Frost said the priorities for the future were to pursue food distribution deals in Germany, non-food contracts in France and the expansion of the commercial and office supplies business across Europe. He added that a "sizeable" acquisition in the commercial sector was a possibility.

Group debt is pounds 56m and gearing is down from 44 per cent to 31 per cent. Mr Frost said the company was unlikely to resort to a rights issue to fund an acquisition.

Hays' figures were particularly impressive given recent downbeat statements from rival distribution groups such as Tibbett & Britten and Christian Salveson. Hays' strategy is to avoid too much exposure to the cut-throat supermarket distribution sector where margins are wafer-thin. Instead the group has concentrated on the supply of non-food items in the UK such as Bridgestone tyres to Kwik Fit and vehicle components to Vauxhall.

The dividend was increased by 15 per cent to 7p. The shares were down 1p to 358p.

Investment Column, page 16