Heads roll at Hays as glitch in archive system knocks shares

Shares in Hays crashed 12 per cent yesterday after the blue-chip support services group warned that its document storage division was more troubled than previously thought and reported poor progress in recruiting a new chief executive.

The setbacks emerged as Hays posted half-year pre-tax profits down £10.7m at £115m. While the overall fall was in line with expectations, a divergence in the performance of Hays's operations came as a shock.

Problems in the installation of a new document archiving system saw the company's commercial division register a 6 per cent profits decline. The division specialises in outsourcing for the police and National Health Service and includes Hays's mailing businesses.

"It's been more disruptive and more complex than thought, and to preserve customer service we've had to slow the operation down," said Bob Lawson, the chairman. "It was an operational problem. Heads have, effectively, rolled."

The problems were likely to continue into next year, the company said, while logistics, mainly a distribution operation, was also heading for a tough second half. The personnel division, which contributes more than 40 per cent of sales, was taking on a higher proportion of low-margin temporary appointments.

Analysts reined back profits forecasts for Hays this year from £245m to about £230m, sending shares in the company down 24p to 186p.

Mr Lawson said the company "had to do some thinking" about the way it had communicated its business in a recent profits warning as well as in the trading update issued at its annual meeting. Analysts voiced concern that a traditionally resilient part of Hays had come to grief, and because of management failings rather than the economic slowdown.

Chris Bamberry, analyst at Deutsche Bank, said: "Even now the shares look pretty fully valued. The company's problems are mainly internal and relate to things they should be able to control." Hays has been without a chief executive since the departure of John Cole following the company's first-ever profits warning in June.

It has found top talent in the sector reluctant to change jobs because of the uncertain outlook. One candidate pulled out at the eleventh hour because "he got nervous of leaving something where he had all the levers of control in his hands".

Mr Lawson hit back at suggestions that Hays's collegiate structure would make some candidates question the easy with which they might stamp their authority on the company. "I've begun to prepare the way. I've been operating my little machete quite effectively," he said.