Hot Group PLC

Results for the 12 months ended 31 August 2003

hot group plc, the AIM listed recruitment specialist, announces its results for the 12 months to 31 August 2003.

At a Glance:

Online division turns profitable in fourth quarter
Strengthening cash position
Continued growth in both online and traditional recruitment divisions
Two acquisitions during the financial year and a further two acquisitions since the August year end
Acquisition announced today taking the group into the fast-growing educational recruitment sector
10.2m raised to fund the groupís acquisition programme
New institutional investors backing the group
Board strengthened with the appointment of a new Non-Executive Director and a new Managing Director in the traditional recruitment division
Consolidated the group by moving into Head Offices in West London

Chairmanís Statement

I am pleased to report a year of great change and development in the group. We have successfully implemented the second phase of our strategy and have built two profitable stand-alone businesses ñ in online and traditional recruitment - involving a series of strategic acquisitions. We acquired two businesses during the financial year, with two further acquisitions completed since the year-end, including todayís acquisition, which takes us into one of the fastest-growing markets - educational recruitment. During the year we raised 10.2m to fund our acquisition programme and attracted a number of new institutional shareholders. We are excited about the future prospects for the business and remain alert to opportunities for significant further growth, both organic and through acquisition.

Financial Results

The group operates in the Human Capital Service sector, where the underlying value of businesses is based on customer service and retention, employee experience and ownership of enabling technologies. As part of our strategy to develop the group through acquisition, it follows therefore that the major asset of acquired businesses is purchased goodwill.

The Board believes that in the light of this reality the most meaningful measure of performance for hot group is operating profit/loss on ordinary activities before any charges for goodwill amortisation, interest, exceptional items and taxation.

This measure of performance provides a good indication of the cash generative performance of the group, both in absolute terms, and also in relative terms when viewed from an adjusted EPS perspective.

Consequently, results for the year ended 31 August 2003 show operating losses before goodwill amortisation of 0.438m compared with losses of 2.225m for the previous 16 month reporting period. The groupís financial performance shows continuous quarter on quarter improvements, with the first recorded profit delivered in the fourth quarter. Sales from continuing operations grew 141% to 2.626m.

Administrative expenses have fallen significantly from 4.357m to 2.869m, primarily due to a combination of reduced costs in 2003 and one time charges taken in the 16 months to 2002.

The loss on ordinary activities after taxation reported by the group shows 4.762m, compared with the loss in the 16 month period to August 2002 of 4.710m. This loss is stated after a goodwill amortisation charge of 5.410m, which reflects the decision of the Board to accelerate the write off of goodwill over 3 years instead of the previous write off period of 20 years. The Board believes that goodwill should be written off on acquisition, but will continue to observe current accounting guidelines.

I would also draw your attention to the deferred tax credit of 1.296m, which has been reflected in our results. This asset has been recognised as a result of the Boardís confidence in utilising the accumulated tax losses in hotonline now that the online division has started to generate operating profits.

Earnings per share for the period to 31st August 2003 before amortisation of goodwill of 1.63p have improved substantially from the loss per share before amortisation for the 16 month period to August 2002 of 29.35p. Consistent with managementís preferred performance measure for the business, the loss per share before interest, exceptional items, amortisation of goodwill and taxation was 1.00p, compared with 12.92p in the sixteen months ended 31 August 2002.

Following our successful fund raising in August, the group has a strong cash position, with 4.970m as at 31st August 2003.


Operations
Online Division
We have successfully consolidated our online services and now offer two distinct products, one to agencies and one directly to employers. We are currently looking to expand the ëhotonlineí network through the acquisition of sites that complement our current offering, thus strengthening existing products, and niche sites that penetrate sectors new to the business. This approach will ensure an increase in monthly traffic, enhanced response rates for customers and a widening of our market opportunity. Furthermore, it will increase our market share and secure our position as one of the largest suppliers of online recruitment in the UK.

Traditional Division
Our traditional division has developed significantly over the last year. Following three acquisitions, including todayís, we now specialise in placing temporary and permanent staff in the education, financial, retail, leisure, secretarial and corporate sales sectors, and provide a fast, high quality service for both clients and candidates. We see exceptional expansion opportunities through the acquisition of businesses in niche sectors, especially those that present synergies with our online product offerings. In this way, both divisions are able to support and enhance the services offered by the other.

Acquisitions
During the year we strengthened our online division with the 3m acquisition of PlanetRecruit Limited, a leading supplier of online services for recruitment firms and jobseekers.

We also launched our traditional recruitment division with the acquisition of Parkside Recruitment Limited (ëParksideí) for 5.5m. Established in 1989, Parkside has annual turnover of 9.5m and specialises in the provision of temporary and permanent finance and office staff, mainly in the Greater London and Thames Valley region. Customers include blue chip companies such as GlaxoSmithKline, Amazon, Honda, Waitrose, Air Products and ICI Paints.

Since the year end we have acquired Buzz Recruitment Consultancy Limited, specialising in permanent recruitment in the leisure, retail and corporate sales markets, and Buzztempz Limited, which supplies temporary staff. These two deals cost a total of 0.38m (with additional deferred consideration of up to 100,000, contingent upon the achievement of certain working capital targets) and significantly strengthen our traditional recruitment business.

In addition, today we announced the acquisition of International Teachers Network Ltd (ITN) for 5.6m in a cash and shares deal, linked to an earn-out based on the results for the year to 31 December 2004. ITN supplies temporary teachers to schools and local education authorities in London and the South East. From its launch in January 2001, ITN has experienced immense growth and, in the 12 months to December 2002, generated revenues of 6.484m and profits of 0.645m. The education sector is a major growth area, which offers exciting opportunities for the group; we believe there is considerable potential, through synergies with the online division, to increase cost-effective candidate flow and speed-up response rates to customers.


Funding
In order to fund the next phase of development, we recently raised 10.2m through a Placing and Open Offer. Underwritten by our brokers, Numis, the fundraising generated substantial interest from a number of significant institutional investors who have all recognised the potential of the group.

The Board
We have strengthened our Board with the appointment of two new directors. John Sanderson joined as a Non-Executive Director in May. John is a well known figure in the business advisory industry with a focus on media and technology. He also has considerable experience in the City. I am also very pleased that Doug Woodward became Managing Director of the traditional recruitment division in September. I previously worked with Doug at Delphi Group, where he played a key role in the development of a leading European recruitment operation.

The Future
Our vision is to change the face of recruitment: to challenge outdated resourcing processes by combining online and traditional recruitment through a blend of technology, creative thinking and effective management. Over the long term we foresee considerable scope for developing a business model that combines the speed and cost-efficiency of online recruitment services, as well as our bespoke candidate management software, with the personal touch provided by traditional recruitment operations. Our aim is to provide clients with a higher calibre short-list of candidates quickly and more efficiently. We recently carried out a pilot scheme to explore how to operate this hybrid service most effectively, working closely with a client who required a fresh and creative approach to their recruitment strategy. In the medium term we aim to enhance our organic growth by exploring potential acquisitions to expand both the online and traditional recruitment divisions.

I would like to take this opportunity to thank all those involved in the group for their hard work and enthusiasm over the last year. The first half of the new financial year is already showing healthy business volumes, and we look forward to the future with confidence.


Anthony H Reeves
8 November 2003