The purpose of the Strategy Review undertaken between November 2002 and February 2003 was to identify the way forward for Hays. As a result of this Review, your Board made the decision to focus exclusively on the development of a strong specialist recruitment business.

THE STRATEGY REVIEW

The Strategy Review looked at all the Hays businesses. We examined the opportunities for growth and attractive returns on investment. We assessed what each business needed for success and how our capacity and track record measured up to those demands. We carried out rapid but extensive research into the views and plans of our actual and potential customers.
From the mass of data and analysis, two stark conclusions emerged.
Firstly, although each of our Divisions was profitable and capable of development, the linkages or synergies between them were too tenuous to justify maintaining Hays’ multi-divisional structure. We also discovered that, although some customers purchased from all of our Divisions, they did not value the so-called ‘one stop shop’ offer.
Secondly, our Personnel business – which already accounts for 60% of overall profits – is well-placed to take advantage of major, very attractive opportunities which deserve the focused and undivided attention of the entire Company.
This business has achieved outstanding organic growth over many years, both from the geographic expansion of established specialisms such as accountancy and the addition of high growth new brands such as Hays Education. It is unique in its balance of temporary and permanent recruitment services which create a robust business mix insulated from the ups and downs of the economic cycle. Moreover, the performance of Hays Personnel’s strong, stable management team and their record of success shows that we have the abilities needed to exploit every opportunity in the future.

THE PERSONNEL PRIORITY

Given these conclusions, the single most important priority has been to maintain the successful development of the Personnel business under Denis Waxman.
Denis has remained devoted exclusively to this task and we are delighted with his team’s success during the past year. We believe that their £114.3 million of operating profit (before tax, goodwill amortisation and exceptional items), which compares very favourably with our competitors, is a great achievement in the economic circumstances. Hays Montrose, our businesses in Australia and newer brands such as Hays Education and Hays Personnel Solutions grew strongly, as did our overall penetration of the public sector. A slow but steady recovery in volumes is becoming evident with the number of temporary assignments now at a record level. The number of permanent placements has grown modestly over each of the last three quarters.
Denis expands on the present and future opportunities for Hays Personnel in his separate Review of Operations which appears on page 64 of this Report and Accounts.

THE TRANSFORMATION PROCESS

Faced with the clear findings of the Strategy Review, your Board and the Executive moved quickly to begin the process of focusing Hays on the Personnel business. We considered the implications of the chosen strategy for shareholders, employees and customers and decided to initiate disposal processes for the non-Personnel businesses.
Given the public speculation about Hays’ strategy, we quickly concluded that we should speak clearly and openly about these disposal processes, even as they commenced.
For shareholders, our strategy offered the fastest and lowest cost route to the benefits to be gained from our sharper focus.
For customers, the key objective was once again speed, in order to minimise the period of uncertainty. We needed to complete commercial negotiations before being able to announce the individual future owners, but we are convinced that each of the businesses being disposed of can flourish and will benefit from being part of an organisation for which it can be a central focus.
We have worked hard to maintain great customer service throughout the transformation and appreciate our customers’ loyalty and support.
I want to express my sincere thanks to all our staff for their patience, confidence and hard work throughout the transformation process. Once again, a speedy end to uncertainty has been our objective. Each of the Group’s businesses can offer good future prospects, but I know that it has been a challenging year for Hays people.
Regarding the disposal processes, our approach has been to ensure that a competitive auction is in place until close to the end of the negotiations. We concluded that, provided the bids were the result of a well run auction, we would accept the best offer as a fair market price.

HAYS MANAGEMENT STRENGTHENED

In order to achieve the Group transformation, the management team has been strengthened. With John Martin, the Group’s Finance Director, in charge, we established small but dedicated teams of professionals to focus in an undistracted way on each transaction.
We have also taken significant steps towards restructuring our balance sheet, and have reviewed and adjusted the structure of our Group legal and financial functions to simplify the operational base of the business going forward. Our Finance Director’s Report on pages 6 and 7 gives further details of this work.
Peter Brougham joined Hays from Emery in December 2002 and was appointed a member of the Executive a month later. He is specifically responsible for Mail and has been transforming his team to exploit the new licence opportunities offered by deregulation.
David Richardson joined the Executive in May 2003, from British Airways, to take responsibility for our remaining businesses – other than Personnel, Logistics and Mail. His mission is to manage them carefully through to disposal.

STRATEGY IMPLEMENTATION

In recent months we have announced the disposal of the Commercial Division for a total consideration of £225.5 million. Four transactions were involved, by far the largest being the sale of Information Management Services to Iron Mountain Europe Limited, the US-headquartered records and information management specialists, for £200 million. Our Business Process Outsourcing operations were sold via three transactions which realised a total of £25.5 million, despite this division having recorded lower profits for the year.
At the time of writing, we are still negotiating the disposal of our Logistics Division which – due to margin pressures throughout the industry – also recorded reduced operating profits during the year. As part of our plan to continue developing this division prior to its disposal, we are addressing the loss making German Logistics and French Transport operations which, regrettably, mask important new contract wins and renewals achieved during the year. Two of these – the renewal of an eight year agreement with Philips and a new nine year contract with Système U in France – demonstrate our belief that this business offers an attractive opportunity for the right buyer.

MAIL DISPOSAL

As previously announced, our Mail Division will not form part of Hays over the longer term.
First, however, we want to demonstrate the value arising from the new trading environment and the long term licence awarded to us by Postcomm in December 2002.
During the year, we have been busy launching the newly licensed services and, although still at an early stage, we are delighted with their growth. For instance, starting from zero in June 2003, by August we were despatching 2,000 pieces of DX+ mail per night via our “to the door” next-day service which guarantees document deliveries by 8.00am.
While the Mail Division has been very tightly focused on these new business opportunities, we have decided to dispose of a number of peripheral activities previously reported within Mail and Express.

LOOKING AHEAD

The decision to become a focused specialist recruitment Company was taken by a unanimous Board and Executive. We are convinced that we have selected the right strategy for Hays, and that good progress has been made towards achieving our objectives.

Colin Matthews
Chief Executive Officer
8 September 2003