23rd May 2007 07:01
Business Post Group PLC23 May 2007 23rd May 2007 BUSINESS POST GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007 Highlights • Group revenues up 17% to £326m (2006: £278m) • Continued strong growth in UK Mail, with revenues up 124% to £90.3m (2006: £40.4m) • Profit before tax (before exceptional items) of £11.5m (2006: £11.4m*) • Exceptional charges of £1.7m (2006: £6.7m) • Profit before tax (after exceptional items) of £9.8m (2006: £4.7m*) • Proposed final dividend of 10.8p per share (2006: 10.8p) * as restated for prior year adjustments. Guy Buswell, Chief Executive said: "This has been a demanding year for the business but one during which we havesuccessfully dealt with a number of important issues, particularly within ourParcels business. The second half was a positive one for the Group, and we endedthe year with a sound balance sheet. We have also made good early progress with the Change Programme necessary toachieve our strategic objective of becoming the UK's leading independentintegrated postal group, and we see significant opportunities across all threeaspects of our business. We have started the current year, and the next phase of our development, in anencouraging position. Overall trading in the early weeks has been in line withmanagement's expectations, and the Board expects a year of progress." For further information, please contact: Business Post Group plcGuy Buswell (Group Chief Executive) 0121 335 1111Steven Glew (Group Finance Director) 01753 706 070 Hogarth PartnershipJohn Olsen 020 7357 9477Fiona NobletIan Payne INTRODUCTION As expected, the Group's performance in the second half of the year was muchimproved on the corresponding period in the prior year. Revenues grew by 19% inthe second half, resulting in total revenue growth for the year of 17%. Profitbefore tax, before exceptional items, for the second half was £8.3m, £3.4m or69% up on the same period last year leading to profit before tax (beforeexceptionals) for the year being above last year at £11.5m (2006: £11.4m). A particular feature was the continued strong growth of UK Mail, with bothexisting and new customers, reinforcing its position as a leading supplier inthe mail market. Significant progress was made in addressing the operational issues in theParcels business which had previously undermined our performance, and we havesuccessfully managed the exit from the FedEx contract which came to an end on30th April 2007. During the second half, we made further good progress with the implementation ofthe strategic agenda to develop Business Post into the UK's leading independentintegrated postal group, and to exploit fully the growth dynamics of the marketsin which we operate. RESULTS The results can be summarised as follows: Year to 31st March 2007 2006* Inc/(Dec) % Group revenue 325.6 278.2 17.0% ======= ======= ======== Operating profit (before exceptional items) 12.1 11.8 2.5%Exceptional items (1.7) (6.7) 74.6% ------- ------- --------Operating profit 10.4 5.1 103.9%Net interest payable (0.6) (0.4) (50.0%) ------- ------- --------Profit before tax 9.8 4.7 108.5%Tax (2.9) (1.3) (123.1%) ------- ------- --------Profit after tax 6.9 3.4 102.9% ======= ======= ======== Basic earnings per share 12.8p 6.4p 100.0% Revenue and operating profit (before exceptional items) are analysed as follows: Revenue Operating Profit (before exceptional items) Inc/ Inc/ 2007 2006 (Dec) 2007 2006* (Dec) £m £m % £m £m % Parcels 193.8 196.2 (1.2%) 15.1 17.5 (13.7%)Mail 90.3 40.4 123.5% 6.4 3.2 100.0%Specialistservices 41.5 41.6 (0.2%) 2.0 2.1 (4.8%) ------- ------ ------- ------- ------- -------Total 325.6 278.2 17.0% 23.5 22.8 3.1% ======= ====== ======= Central (11.4) (11.0) (3.6%)costs ------- ------- ------- Totaloperatingprofit (beforeexceptionalitems) 12.1 11.8 2.5% ======= ======= ======= * restated Parcels Revenues in Parcels, which comprises the Group's business-to-business,business-to-consumer and international parcel delivery services, were down 1.2%for the year to £193.8m (2006: £196.2m.) In the second half year, however,revenues grew by 1.3% compared to the same period last year. The operational priority for the year was to stabilise the Parcels business,with a particular focus on improving customer service, enhancing networkoperational efficiency, and addressing the under-performing franchiseoperations. Customer service levels remain consistently above 98%, which is amongst thehighest in our industry. Through a review of capacity utilisation and the effective management ofoperations we have achieved a good reduction in average cost per consignment inour linehaul operations - the bulk overnight movement of parcels. Importantly, we have continued to improve the performance of the formerfranchises now under corporate ownership. We have transferred a further 11 tocorporate ownership since March 2006, resulting in a remaining franchise networknow of 16 franchisees. Overall, these transferred franchise operations made atrading loss of £3.3m in the year of which £1.4m was incurred in the secondhalf. These losses have now been eliminated. The trading losses from the transferred franchises are reflected in the overallpre-exceptional operating profits for Parcels which were down 13.7% to £15.1m(2006: £17.5m). Whilst underlying margins within Parcels remained acceptable, we believe thereis scope to further enhance these over time. The loss of the Fed Ex contract, as a result of their acquisition of the UKparcel delivery company ANC, was announced in December 2006. On an annual basisthis contract was worth some £20m of revenue and £2m of operating profit. Thecontract terminated on the 30th April 2007. We have successfully managed thetermination of the contract, ensuring that service levels to customers weremaintained and selling or transferring a number of the assets and resourcesassociated with the contract to Fed Ex. All costs associated with the contractwere eradicated by the end of April 2007. The Parcels business has now been effectively stabilised, and management focusis returning to growth in those areas that offer the most attractive returns. Mail UK Mail showed continued strong growth, with further significant success inattracting new business, particularly in the financial services industry. As aresult, revenues rose 124% to £90.3m (2006: £40.4m) During the year we won a number of major new customers as the mail industrycontinues to deregulate and customers take advantage of the reduced prices andimproved service provided by UK Mail . New customers included the BBC, theDepartment of Work and Pensions, and a number of major banks. We also continuedto win significant further business from existing customers. Our high servicelevels have been a major factor in winning two key awards in the year: the RoyalMail 'Down Stream Access' award and the Royal Bank of Scotland Group 'Supplierof the Year' award. In March 2007 we announced a new product called Agent for Access (AFA). One ofthe factors limiting the growth of the deregulated mail market is that RoyalMail are not required to charge VAT on their services whereas the privatebusinesses such as UK Mail must charge VAT at 17.5%. We continue to lobbyagainst this treatment but, in the meantime, the AFA approach reduces the impactby enabling UK Mail to charge VAT only on the costs of its services rather thanthe full cost including Royal Mail access cost. We see this as a furtheropportunity to expand our share of the mail market. In March 2007 we handled over 110 million mail items, representing some 5.5% ofthe total mail market by volume. We have invested a further £4.0m in theinstallation of 10 new sorting machines in the year to create capacity forfuture growth. We now have 14 sorting machines of which 11 are letter sortersand 3 are 'flat' sorters. This nationwide network allows us to provide ourcustomers with a quick, efficient mail sortation service. UK Mail operating profits were up 100% to £6.4m (2006: £3.2m), reflecting thevery strong revenue growth partially offset by the revenue impact of the capitalinvestment referred to above. Specialist Services Overall revenues in Specialist Services, comprising our nationwide palletisedgoods delivery service (UK Pallets) and same-day courier activities (UK Today),were in line with last year, at £41.5m (2006: £41.6m). UK Pallets revenues were up 5.8% to £29.1m (2006: £27.5m), driven byimprovements in the quality of the pallet network, management and marketingactivities. UK Today revenues were down 12.1% to £12.4m (2006: £14.1m). The result reflectsour discontinuation of two major accounts. We have recently significantlystrengthened the management of this business and are confident in its growthprospects. In particular, we see opportunities to leverage customerrelationships across the Group, particularly in the financial services sector,in line with our strategic shift towards a fully integrated service offering. Overall operating profit in Specialist Services was down 4.8% to £2.0m (2006: £2.1m). This decrease reflects the reduction in revenues in UK Today combinedwith one-off items of some £0.3m relating to investment in our pallet networkand accounting adjustments to asset values. Exceptional item The exceptional item of £1.7m is made up as follows: £mProvision against outstanding franchise debt 1.5Provision for one off costs relating to the loss of the Fed Ex contract 1.3Gain on disposal of property (1.1) --------- 1.7 During the year ended 31 March 2006 a provision was made against the outstandingfranchise debt. Recoverability of the amounts due from franchises, particularlythose poorly performing franchises being brought back into Corporate ownership,has been less than anticipated resulting in the need to provide further againstthe franchise debt. In December 2006 it was announced that Business Post had lost the contract toact as Fed Ex's International Delivery Partner in the UK, due to Fed Ex'sacquisition of the UK parcel delivery company ANC. The contract terminated atthe end of April 2007. The provision of £1.3m relates to the one-off costs ofthis termination, including legal costs, redundancies and vehicle liveryremoval. In February 2007 a freehold property was sold for £2.2m giving rise to a profiton disposal of £1.1m. Interest Net interest payable increased to £0.6m (2006: £0.4m), principally due to areduction in loan interest recoverable from franchisees. Cash Flow and Balance Sheet The Group had very encouraging net cash inflow of £12.4m in the period, leadingto a cash balance at the end the year of £12.0m (2006: £0.4m overdrawn). Overallthe Group had net cash of £0.1m at the year end compared to net debt at March2006 of £9.6m. Cash inflow from operating activities totalled £26.2m, including£9.2m of cash released from working capital as a result of tightening financialdisciplines. Capital expenditure for the period was £9.6m (2006: £8.2m) of whichthe cost of the 10 mail sortation machines installed in the year was £4.0m. Dividend The Board proposes a Final Dividend of 10.8p (2006: 10.8p), resulting in anunchanged total dividend for the year of 17.2p (2006: 17.2p). The Final Dividendwill be paid on 27 July 2007 to shareholders registered on 6 July 2007 with anex-dividend date of 4 July 2007. STRATEGY As stated at the half-year stage, our goal is to develop Business Post into theUK's leading independent integrated postal group, through addressing thefollowing four key elements:- • An integrated management approach, particularly in customer relationship management - to leverage fully the competitive advantage created by our integrated physical infrastructure, and the growth opportunities within our group-wide customer base. • The further customer orientation of our Parcels business - continually adapting to address the changing requirements of the market, including the fast-growing home delivery segment. • Building further on our leading position in the deregulating mail industry - through customer focus, product innovation and technology leadership. • The exploitation of new opportunities in specialist services - building on the capabilities within our existing niche offerings, introducing new services, and leveraging the wider customer relationships within the Group. We have now instigated a Change Programme to implement the initiatives necessaryto achieve these objectives. Early priorities have been a comprehensive marketand customer analysis to properly understand the needs of customers and theopportunities open to us; the creation of new operational management andmarketing structures to encourage a more integrated approach to our businessdevelopment; and additional IT investment to expand our capacity for growth andreduce our operating costs. OUTLOOK We have started the new financial year with a sound balance sheet which enablesus to invest in developing and growing the business. We continue to build on thegood early progress with the changes necessary to achieve our strategicobjective of becoming the UK's leading independent integrated postal group. ThisChange Programme will create a solid platform for delivering sustainable profitable growth in the future. We see significant opportunities across all three aspects of our business. TheParcels business has an increasingly differentiated market position and isfocused on segments with clear growth potential, and we continue to lead the wayin the fast-growing deregulated Mail market. Both these operations and those inour Specialist business will benefit increasingly from the integrated serviceoffering. The start of the year has been encouraging with trading in the early weeks inline with management's expectations. We look forward to a year of progress. Consolidated Income Statementfor the year ended 31 March 2007 2006 2007 (as restated) £m £m Revenue 325.6 278.2Cost of sales (275.6) (231.4) -------- --------Gross profit 50.0 46.8Administrative expenses (39.6) (41.7)------------------------------------------------------------------------------Operating profit before exceptional items 12.1 11.8Exceptional items (1.7) (6.7)------------------------------------------------------------------------------Operating profit 10.4 5.1Interest payable (0.7) (0.8)Interest receivable 0.1 0.4 -------- --------Profit before taxation 9.8 4.7Taxation (2.9) (1.3) -------- --------Profit for the year 6.9 3.4 -------- -------- Basic earnings per share 12.8p 6.4pDiluted earnings per share 12.6p 6.3p The profit for the financial year arises from the Group's continuingactivities, and is wholly attributable to equity holders of the Company. Consolidated Balance Sheetas at 31 March 2007 2006 2007 (as restated) £m £mASSETSNon-current assets Goodwill 9.5 9.5Intangible assets 1.2 0.7Investment properties 1.1 1.1Property, plant and equipment 37.3 35.2Trade and other receivables - 0.4Deferred tax assets - 0.1 ------- -------- 49.1 47.0 ------- --------Current assetsInventories 0.2 0.2Trade and other receivables 56.2 53.3Current tax assets - 0.6Cash and cash equivalents 12.0 - ------- -------- 68.4 54.1 ------- --------LIABILITIESCurrent liabilitiesBorrowings (1.7) (1.6)Trade and other payables (48.8) (34.0)Current tax liabilities (1.4) -Provisions (0.6) (1.3) ------- -------- (52.5) (36.9) ------- -------- ------- --------Net current assets 15.9 17.2 ------- -------- Non-current liabilitiesBorrowings (10.2) (8.0)Deferred tax liabilities (0.5) (1.3)Provisions (0.8) (0.3) ------- -------- (11.5) (9.6) ------- -------- ------- --------Net assets 53.5 54.6 ======= ======== Shareholders' equityOrdinary shares 5.5 5.5Share premium 16.2 14.6Retained earnings 31.8 34.5 ------- --------Total shareholders' equity 53.5 54.6 ======= ======== Consolidated Cash Flow Statementfor the year ended 31 March 2007 2006 2007 (as restated) £m £m Operating activitiesOperating profit 10.4 5.1Exceptional items 1.7 6.7Depreciation and amortisation 6.0 5.3Decrease in working capital 9.2 0.1Interest received 0.1 0.4Interest paid (0.7) (0.8)Taxation paid (1.4) (3.6)Other non cash items 0.9 (0.4) ------- ---------Net cash inflow from operating activities 26.2 12.8 ------- --------- Investing activitiesProceeds from disposal of property, plant and equipment 2.3 0.7Purchase of property, plant and equipment (8.6) (7.8)Purchase of intangible assets (1.0) (0.4) ------- ---------Net cash outflow from investing activities (7.3) (7.5) ------- --------- Financing activitiesDividends paid to shareholders (9.3) (10.4)Proceeds from re-financing under finance leases 3.9 1.2Repayment of finance lease liabilities (0.3) -Net proceeds from issue of ordinary share capital 0.2 2.4Purchase of Business Post shares by the ESOT - (1.3)Repayment of borrowings (1.0) (1.0) ------- ---------Net cash outflow from financing activities (6.5) (9.1) ------- --------- Net increase/(decrease) in cash and cash equivalents 12.4 (3.8)Cash and cash equivalents at the beginning of the year (0.4) 3.4 ------- ---------Cash and cash equivalents at the end of the year 12.0 (0.4) ------- --------- Consolidated Statement of Changes in Shareholders' Equityfor the year ended 31 March 2007 2007 2006 £m £m Shareholders' equity as at the beginning of the year as previously reported 55.8 62.6Prior year adjustment (1.2) (0.9) ------- ---------Shareholders' equity as at the beginning of theyear as restated 54.6 61.7Dividends paid to shareholders (9.3) (10.4)Purchase of Business Post shares by the ESOT - (1.3)Employees' share option scheme: - value of employee services 1.0 (0.5) - proceeds from shares issued 0.2 2.5Tax on items taken directly to equity 0.1 (0.8)Profit for the year 6.9 3.4 ------- ---------Shareholders' equity as at the end of the year 53.5 54.6 ------- --------- Notes to the Consolidated Financial Information 1 Segmental information 2007 2006 £m £m RevenueParcel services 193.8 195.8Mail services 90.3 40.4Specialist services 41.5 41.6Other - 0.4 ------- --------- 325.6 278.2 ------- --------- Operating profitParcel services - before exceptional items 15.1 17.5 - exceptional items (1.7) (6.7) ------- --------- 13.4 10.8 ------- ---------Mail services 6.4 3.2Specialist services 2.0 2.1Central costs (11.4) (11.0) ------- --------- 10.4 5.1 ------- --------- 2 Exceptional items 2007 2006 £m £m Franchise-related costs 1.5 5.9FedEx termination costs 1.3 -Profit on sale of freehold property (1.1) -Management restructuring - 0.8 ------ ------ 1.7 6.7 ------ ------ Franchise-related costs During the year ended 31 March 2006 a £5.9m provision was made against theoutstanding franchise debt and the costs of conversion of a number of franchisesites to corporate ownership. Recoverability of the amounts due from franchises,particularly those poorly performing franchises brought back into Corporateownership, has been less than anticipated resulting in the need to provide afurther £1.5m against this debt. FedEx termination costs A number of one-off costs were incurred following the termination of the FederalExpress contract, including vehicle livery removal, uniform replacement,redundancy costs and legal fees. Sale of freehold property A freehold property was sold on 16 February 2007 for £2.2m, resulting in a netprofit of £1.1m. 3 Earnings per share Basic earnings per share have been calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue for the year ended 31 March 2007 of 54,150,544 (2006: 53,962,493). Diluted earnings per share have been calculated by adjusting the weighted average number of ordinary shares for the effect of the exercise of share options, increasing the number of shares to 54,967,167 (2006: 54,570,403). 4 General information The above figures have been extracted from the Group's full financial statements for the year ended 31 March 2007, which will be delivered to the Registrar of Companies. Those financial statements carry an unqualified audit opinion. They have been prepared in accordance with the Companies Act 1985 and International Financial Reporting Standards as adopted by the European Union. The accounting policies are set out in those financial statements. These extracts do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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