23rd May 2006 07:02
Business Post Group PLC23 May 2006 Tuesday 23 May 2006 BUSINESS POST GROUP PLC PRELIMINARY RESULTS FOR YEAR TO 31 MARCH 2006 Business Post Group plc announces unaudited results for the year ended 31 March2006 in line with the Trading Update of 31 March 2006. Financial • Revenue increased by 19% to £278.2m (2005: £233.3m). • Profit before tax and exceptional items totalled £11.7m (2005: £19.6m); reported pre-tax profit was £5.0m (2005: £19.6m). • Underlying trading was in line with expectations. In addition, pre-tax profits benefited from the reversal of IFRS charges for share-based incentives. The resultant IFRS credit of £0.4m compares with a charge of £1.0m in the prior year. • Exceptional costs totalled £6.7m (2005: £Nil), relating to the franchise network, management changes and restructuring. • Basic earnings per share before exceptional items totalled 15.5p (2005: 25.6p), or 6.9p (2005: 25.6p) after exceptional items. • The Board remains confident of the Group's long term potential and the prospects for recovery. Accordingly, the Board proposes a final dividend of 10.8p (2005: 12.8p). Operational • Parcel Services (Express; International; HomeServe) increased revenue by 5% to £195.8m, but pre-exceptional operating profits declined by 43% to £17.4m (2005: £30.3m). Operating profit was £11.1m (2005: £30.3m). • A comprehensive action plan is being implemented to improve the performance of Parcel Services; encouraging early progress is being achieved, with service levels in the first quarter of 2006 amongst the highest in the Company's history. • Major contract with FedEx Express recently renewed, for a further five years from September 2006, on similar commercial terms. • UK Mail made further excellent progress, increasing revenue four-fold to £40.4m (2005: £10.2m), representing 15% of Group total (2005: 4%); operating profit was £3.2m (2005: breakeven). • Specialist Services (UK Pallets; Courier) made good progress, increasing revenue by 18% to £41.6m (2005: £35.3m) and pre-exceptional operating profit by 21% to £2.3m (2005: £1.9m). Operating profit was £2.1m (2005: £1.9m) • Guy Buswell, previously Managing Director of UK Mail, was appointed Group Chief Executive on 5 December 2005. • Steven Glew, previously Finance Director of Mothercare plc and Booker plc, appointed Group Finance Director with effect from 5 June 2006. Peter Kane, Chairman, stated: "We are pleased with the excellent progress made in UK Mail and SpecialistServices during the period. However, it has been a very challenging year withinParcel Services, particularly in the second half. Following Guy Buswell'sappointment as Group Chief Executive in December, a comprehensive performanceimprovement plan has been developed, and is being rigorously implemented. Encouraging early progress has been made, with service levels remaining high andthe number of customers now on an upward trend. It will take time for the fullbenefit of our actions to show through but, with trading since the year endhaving been satisfactory, we expect underlying progress to be made in the comingyear, albeit weighted to the second half." Presentation: This morning, from 9.00 am to 10.00 am, an analyst meeting will be held at theLondon Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Enquiries: Business Post Group plcGuy Buswell (Chief Executive) 0121 335 1111Peter Fitzwilliam (Finance Director) 01753 706 070 Hogarth PartnershipJohn Olsen 020 7357 9477Fiona NobletSara Richardson CHAIRMAN'S STATEMENT Excellent progress has been made in UK Mail and Specialist Services during theperiod. However, it has been a very challenging year within Parcel Services,particularly in the second half. Under the new leadership of Guy Buswell, whowas appointed Group Chief Executive in December 2005, a comprehensiveperformance improvement plan has been developed, and is being rigorouslyimplemented. Encouraging early progress has been made, particularly in improvingcustomer service levels, but it will take time for the full benefit of theseactions to show through in the Group results. FINANCIAL REVIEW Revenue increased by 19% to £278.2m (2005: £233.3m). UK Mail contributed £30.2mof the total revenue increase of £44.9m. Operating profit before exceptional items reduced to £12.1m (2005: £19.9m),reflecting a decline in profitability levels within Parcel Services butbenefiting from the reversal of IFRS charges for share-based incentivesfollowing the failure of share incentives to meet their relevant performanceconditions. The IFRS credit of £0.4m compares with a charge of £1.0m in theprior year. Operating profit totalled £5.4m (2005: £19.9m). After net interestpayable of £0.4m (2005: £0.3m), profit before tax and exceptional items was£11.7m (2005: £19.6m). Exceptional costs totalled £6.7m (2005: £Nil), comprising £5.9m in relation tothe franchise network and £0.8m for management changes and restructuring. Inprevious years, Group policy had been to treat advanced funding to franchiseesas debt, with recovery being assessed on a periodic basis. For the year to March2006, all such historic debt was written off in full, resulting in anexceptional charge of £3.2m. Furthermore, additional advances to franchiseesmade during the year were expensed against operating profit. After exceptionalitems, pre-tax profit totalled £5.0m (2005: £19.6m). The effective tax rate of 26% (2005: 30%) reflects credits relating to theexercise of share options in the current and prior years. Gross capital expenditure increased to £8.2m (2005: £6.7m) as a result of thepurchase of sorting machines for UK Mail. Net debt at the year-end of £9.6mcompared with £5.6m last year, a strong working capital position partlyoffsetting lower levels of profitability. Gearing remains low, at 17% (2005:9%). DIVIDENDS The Board remains confident of the Group's long term potential and the prospectsfor recovery. Accordingly, following payment of an unchanged interim dividend of6.4p, the Board proposes a final dividend of 10.8p (2005: 12.8p). The finaldividend will be payable on 20 July to shareholders on the register at the closeof business on 30 June 2006. BUSINESS REVIEW Parcel Services Parcel Services comprises the Group's overnight business-to-business, (Express),business-to-consumer (HomeServe) and cross-border (International) parceldelivery activities, using a national network of 59 parcel depots. During the year, Parcel Services increased revenue by 5% to £195.8m,representing 70% of the Group total (2005: 80%). After a strong start to theyear, with daily volumes well ahead of the previous year, growth progressivelydeteriorated, to the point where in the final quarter they were below those ofthe previous year. Pre-exceptional operating profit declined to £17.4m (2005:£30.3m). Operating profit was £11.1m (2005: £30.3m). Express revenue declined slightly to £130.8m (2005: £131.3m); HomeServeincreased revenue by 22% to £32.8m (2005: £26.8m), and International by 12% to£31.6m (2005: £28.1m). Both the progressive decline in revenue growth during the year and the markedlylower profitability can be attributed in large part to the impact of a number ofunsuccessful profit-improvement initiatives introduced during the year. Theseincluded short-term cost reduction initiatives which adversely impacted servicelevels. These service issues, and a series of price increases in the summer, inturn affected customer numbers, particularly SMEs, with the result that theaverage selling price declined and operational efficiency reduced. Furthermore,additional costs have been incurred in supporting a number of under-performingfranchises. Performance improvement Following his appointment as Group Chief Executive in early December 2005, GuyBuswell has identified a series of remedial actions, which the Board isconfident will improve levels of profitability within the Parcel Servicesbusiness. The first priority is to ensure that high levels of customer serviceare provided on a consistent and reliable basis. Under the leadership of anewly-appointed Operations Director, the results of this focus are alreadyevident, with service levels in the first three months of 2006 being among thehighest in the Company's history. This improvement, along with our ability todeliver tailored IT solutions, was a central factor in the decision of FedExExpress to renew Business Post's contract as Global Service Participant in theUK. Business Post's existing five year contract will be replaced with a new fiveyear contract, with effect from 3 September 2006, on similar commercial terms. The network's operational efficiency is affected by the balance of collectionsand deliveries in individual locations. In simple terms, the more equal thebalance, the more efficiency is optimised. Over time, changes within thecustomer base have impacted this balance, and sales activity is now beingtargeted on those sites which would benefit most significantly. Accordingly,sales incentives have been introduced to encourage new business from smallercustomers, both to increase average selling prices and to enhance utilisation ofcollection and delivery vehicles. In addition to these site-based initiatives, additional focus is being placed onLinehaul - the bulk overnight movement of parcels. Through a renewed focus oncapacity utilisation, opportunities have already been identified to reduce thenumber of routes operated, releasing vehicles from the fleet. This will remainone of the key cost reduction initiatives pursued during the current year. The impact of the events of the past year has been acute both within BusinessPost's own sites and also its franchise locations. The level of profitabilitywithin the franchise network has been poor and, in order to maintain continuityof service for customers, increased levels of funding were provided during theyear. The impact on the network has led both to a reassessment of therecoverability of amounts previously advanced to franchises and also the futureviability of some individual franchise locations. As a consequence, a provision of £3.2m was made against amounts owed by certainfranchises relating to prior years, treated as an exceptional item. Furthermore,certain locations were identified where prospects for improvement were poor. Anumber of these have been converted to Business Post ownership since the startof 2006. All conversions have been effected without any detrimental impact onservice levels, but have resulted in one-off costs of transition, expected toamount to around £2.7m. These costs have been reported as an exceptional item.The number of franchises has been reduced from 42 at its peak to 21 today. Mail Services UK Mail enjoyed another excellent year, increasing revenue four-fold to £40.4m,representing almost 15% of the Group total, up from 4% last year. At the yearend, less than two years after commencing trading, UK Mail had an annualisedthroughput of approximately 700 million items. This represents approaching 3% ofthe market, is ahead of schedule and reinforces UK Mail's position as the marketleader in downstream access. New UK Mail customers signed over the past year include Carphone Warehouse, O2,Standard Life, and a contract with First Data International (FDI), a leadingmail production company, to handle significant volumes of mail for one of theUK's major financial institutions. This builds on UK Mail's earlier success inthe financial services market, adding to the major contract won in 2005 with theRoyal Bank of Scotland Group. As well as excellent progress in the market for pre-sorted mail items, wherestrong levels of new business wins have continued, good progress has been madein the market for unsorted mail. UK Mail's unsorted mail service, introducedprogressively throughout the year, has made an encouraging start and contributeda modest amount to UK Mail's operating profit. Four machines are already inplace and further machines are planned for introduction during the coming year. Operating profit of £3.2m (2005: breakeven) was achieved, and further strongprogress is expected in the current year. Specialist Services Specialist Services comprises UK Pallets, a nationwide palletised goods deliveryservice, and its same-day Courier activities through UK Today and BXTech. Overall, operating profit before exceptional items increased by 21% to £2.3m(2005: £1.9m) against a revenue increase of 18%. Operating profit was £2.1m(2005: £1.9m). UK PalletsUK Pallets increased revenue by 19% to £27.5m, representing an unchanged 10% ofGroup turnover. This is an encouraging performance against a background of amaturing market and reflects the benefits of expanded sales activity during theyear. With a new Managing Director and management structure in place a number ofnew business development initiatives are being pursued. CourierBusiness Post's same day Courier activities increased revenue by 16% to £14.1m,representing 5% of the Group total. A focus on profit margins during the yearyielded good results, with a 1.4% increase in operating profit margins. Themanagement of the Group's Courier activities has recently been restructured,amalgamating BXTech and UK Today into one business under single management. Thisrestructuring is expected to yield further profit improvements in the comingyear. MANAGEMENT Since his appointment as Chief Executive on 5 December 2005, Guy Buswell hasmade a number of significant changes to the management team, designed tostreamline the management of the Group's activities and provide greater focus onthose areas requiring margin improvement. The Executive Group has been reducedfrom 17 to 11, the management structures within Parcel Services and SpecialistServices have been simplified, and a number of new appointments have been madein key operational areas. The costs relating to this restructuring, together with those relating to thedeparture of the previous Chief Executive, amounted to £0.8m, net of associatedIFRS share-related credits, and have been reported as an exceptional item. In a separate statement issued today, the Group has announced the appointment ofSteven Glew as Group Finance Director with effect from 5 June 2006. Mr Glew hasan excellent record of delivering successful change programmes within quotedcompanies, most notably at Mothercare plc and Booker plc. Peter Fitzwilliam will relinquish his role as Group Finance Director and stepdown from the Board on 2 June 2006. Mr Fitzwilliam has been Group FinanceDirector since 1999, and during that period has played an important role in thedevelopment of Business Post. STRATEGY The Group's strategy remains to focus on three areas of business - ParcelServices, Mail and Specialist Services. The business model of Parcel Services issound, and there is significant scope for recovery. The opportunities for UKMail, operating through the Group's core network, remain particularly excitingand the Board believes that the Company can maintain its position as the leadingcompetitor to the Royal Mail for the foreseeable future. The businesses withinSpecialist Services operate outside the core network, and continue to offerattractive growth opportunities on a stand-alone basis. As previously stated, the Board believes that the Group contains the elementsnecessary for substantial profitable growth. CURRENT TRADING AND PROSPECTS Trading since the year end has been satisfactory. Service levels remain high andthe number of customers, following a period of decline during the year, is nowon an upward trend. Encouraging progress is being made in tackling the issueswithin the franchise network and initiatives to rebalance the mix of customersand reduce unit costs within Parcel Services are in the process of beingimplemented. The Board is confident that these will address the major underlyingissues affecting profitability but, by their nature, will take time to showthrough in the financial results for the Company. The Board expects progress inthe underlying results in the coming year, albeit weighted to the second half. Peter Kane 23 May 2006Chairman CONSOLIDATED INCOME STATEMENT for the year ended 31 March 2006 Unaudited Unaudited Year to Year to 31 March 31 March 2006 2005 £m £m_____________________________________________________________________________ Revenue 278.2 233.3 Cost of sales (231.3) (184.7) ________ _________ Gross profit 46.9 48.6 Administrative expenses (41.5) (28.7)_____________________________________________________________________________ Operating profit before exceptional items 12.1 19.9 Exceptional items (6.7) -_____________________________________________________________________________ Operating profit 5.4 19.9 Net interest payable (0.4) (0.3) ________ _________Profit before taxation 5.0 19.6 Taxation (1.3) (5.9) ________ _________Profit for the year 3.7 13.7 --------- --------- Basic earnings per share 6.9p 25.6p Diluted earnings per share 6.8p 25.2p The profit for the financial year arises from the Group's continuingactivities and is wholly attributable to equity holders of the Company. CONSOLIDATED BALANCE SHEET as at 31 March 2006 Unaudited Unaudited Year to Year to 31 March 31 March 2006 2005 £m £m_______________________________________________________________________________AssetsNon-current assetsGoodwill 9.5 9.5Intangible assets 0.7 0.6Investment properties 1.1 1.1Property, plant and equipment 35.5 33.1Trade and other receivables 0.4 3.3Deferred tax assets 0.1 1.8 _________ ________ 47.3 49.4 _________ ________ Current assetsInventories 0.2 0.2Trade and other receivables 53.3 47.2Current tax assets 0.2 -Cash and cash equivalents - 3.4 _________ ________ 53.7 50.8 _________ ________LiabilitiesCurrent liabilitiesBorrowings (1.6) (1.0)Trade and other payables (32.7) (23.8)Current tax liabilities - (2.8)Provisions (1.3) (0.1) _________ ________ (35.6) (27.7) _________ ________ Net current assets 18.1 23.1 _________ ________ Non-current liabilitiesBorrowings (8.0) (8.0)Deferred tax liabilities (1.3) (1.4)Provisions (0.3) (0.4) _________ ________ (9.6) (9.8) _________ ________ Net assets 55.8 62.7 _________ ________ Shareholders' equityOrdinary shares 5.5 5.4Share premium 14.6 12.2Retained earnings 35.7 45.1 _________ ________Total shareholders' equity 55.8 62.7 _________ ________ CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2006 Unaudited Unaudited 2006 2005 £m £m______________________________________________________________________________Operating activitiesOperating profit 5.4 19.9Exceptional items 6.7 -Depreciation and amortisation 5.1 4.5Increase in working capital - (3.8)Interest received 0.4 0.4Interest paid (0.8) (0.7)Taxation paid (3.6) (6.1)Other non cash items (0.4) 0.9 ________ ________Net cash inflow from operating activities 12.8 15.1 ________ ________ Investing activitiesPurchase of subsidiary undertakings - 0.6Proceeds from sale of property, plant and equipment 0.7 0.1Purchase of property, plant and equipment (7.8) (6.4)Purchase of intangible assets (0.4) (0.3) ________ ________Net cash outflow from investing activities (7.5) (6.0) ________ ________ Financing activitiesEquity dividends paid (10.4) (9.9)Proceeds from re-financing under finance leases 1.2 -Issue of share capital 2.4 2.0Purchase of treasury shares (1.3) (1.2)Repayment of borrowings (1.0) (1.0) ________ ________Net cash outflow from financing activities (9.1) (10.1) ________ ________ Net decrease in cash and cash equivalents (3.8) (1.0)Cash and cash equivalents at 1 April 3.4 4.4 ________ ________Cash and cash equivalents at 31 March (0.4) 3.4 ________ ________ CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended 31 March 2006 Unaudited Unaudited 2006 2005 £m £m______________________________________________________________________________ Shareholders' equity at 1 April 62.7 56.0Adoption of IAS 32 and IAS 39 (0.1) -Dividends paid to shareholders (10.4) (9.8)Purchase of treasury shares (1.3) (1.2)Employees' share option scheme:- value of employee services (0.5) 1.0- proceeds from shares issued 2.5 2.0Tax on items taken directly to equity (0.8) 1.0Profit for the year 3.7 13.7 ________ ________Shareholders' equity at 31 March 55.8 62.7 ________ ________ NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION 1. Segmental analysis Unaudited Unaudited Year to Year to 31 March 31 March 2005 2006 £m £m________________________________________________________________________________ RevenueParcel Services 195.8 187.0Mail Services 40.4 10.2Specialist Services 41.6 35.3Central lessintra-Group 0.4 0.8 ________ _______ 278.2 233.3 ________ _______ Operating profit before exceptional itemsParcel Services 17.4 30.3Mail Services 3.2 -Specialist Services 2.3 1.9Central - continuing operations (11.2) (11.3) - IFRS share-based credits/(charges) 0.4 (1.0) ________ _______ 12.1 19.9 ________ _______ Operating profitParcel Services 11.1 30.3Mail Services 3.2 -Specialist Services 2.1 1.9Central (11.0) (12.3) ________ _______ 5.4 19.9 ________ _______ 2. Exceptional items Exceptional items comprise a total charge of £5.9m in connection withfranchise-related matters and £0.8m relating to management restructuring costs.Of the franchise-related costs, £3.2m represents a provision against amountsowed by certain franchises relating to periods prior to 1 April 2005 and £2.7mrepresents the costs of converting underperforming franchise sites to corporatesites in the year to 31 March 2006 (£2.4m), and claims from prior franchisees(£0.3m). 3. Earnings per share Basic earnings per share have been calculated by dividing the profit for theyear by the weighted average number of ordinary shares in issue for the yearended 31 March 2006 of 53,962,493 (2005: 53,586,502). Diluted earnings per sharehave been calculated by adjusting the weighted average number of ordinary sharesfor the effect of the exercise of share options, increasing the number of sharesto 54,326,707 (2005: 54,475,411). 4. General information The financial information set out in these preliminary results does notconstitute the Company's statutory accounts within the meaning of Section 240 ofthe Companies Act 1985. The statutory accounts of the Company for the year ended31 March 2005 were originally presented under UK GAAP and have been delivered tothe Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain a statement under either Section 237(2) orSection 237(3) of the Companies Act 1985. The financial information set out in this preliminary announcement is unaudited.This information has been prepared under IFRS as adopted for use in the EU. Thepolicies adopted by the Group and the restated figures for 2005 were previouslypublished in the Statement of Transition to International Financial ReportingStandards issued on 14 November 2005. Once finalised, the accounts will bedelivered to the Registrar of Companies following the Annual General Meeting on11 July 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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