17th May 2005 07:00
Business Post Group PLC17 May 2005 Tuesday 17 May 2005 BUSINESS POST GROUP PLC - PRELIMINARY ANNOUNCEMENT Business Post, the UK's leading independent express delivery company, announcesthat, in the year ended 31 March 2005, it continued to enjoy considerablesuccess. Financial Highlights •Turnover increased by 21% to £233.3m, representing like-for-like growth of 12%. •Adjusting for goodwill amortisation of £0.5m, operating profit increased by 9% to £20.8m, pre-tax profit by 7% to £20.5m, and EPS by 9% to 26.6p. (Statutory operating profit, pre-tax profit and EPS were £20.3m, £20.0m and 25.7p respectively.) •Dividends per share of 19.2p, up 7%, are proposed. •Since 2001, turnover has increased by 89%, and adjusted pre-tax profit and EPS by 61% and 57% respectively. Commercial Highlights •Adjusting for three fewer working days, Express increased its turnover by 7%, representing an increased market share of around 8%. •All of the other existing businesses - International, HomeServe, Courier and UK Pallets - increased turnover by at least 15%. •HomeServe had another excellent year, increasing turnover by 54% to £26.8m, representing an eight-fold increase since its relaunch in April 2002. •UK Mail commenced trading on 10 May 2004 and had an outstanding and profitable first year. The annualised year-end volume of approximately 250m items represented a market share of approaching 1%, ahead of expectations. Peter Kane, Chairman, stated: "Trading since the year end has been encouraging,with revenues well ahead of last year, and up in all business units. The Boardexpects substantial progress in the current year and remains very confidentabout the Group's long term potential. In particular, the Board is encouraged bythe prospects for UK Mail, which remains on track for a 3% market share by theend of its third year." Enquiries: Business Post Group plcPaul Carvell (Chief Executive) 0121-335 1111Peter Fitzwilliam (Finance Director) 01753-706 070 Bankside Consultants LimitedCharles Ponsonby 020-7444 4166 / 07789-202 312 CHAIRMAN'S STATEMENT I am pleased to report that, in the year ended 31 March 2005, Business Postenjoyed continued success. The Group's core business, the Express UK business-to-business parcel activity,again gained market share, whilst the existing newer and smaller businesses -International, HomeServe, UK Pallets and Courier - again achieved much fastergrowth, in all cases at least 15%. The most recently launched business, UK Mail, which commenced trading in May2004, had an outstanding first year and is on track to achieve the Group'sprediction of a 3% share of the mail market by the end of its third year. The Group remains well placed for further substantial progress. FINANCIAL REVIEW Despite three fewer working days, turnover increased by 21% to £233.3m (2004:£192.7m), representing like-for-like growth* of 12% and a full year contributionfrom UK Pallets, which was acquired in July 2003, and an initial contributionfrom UK Mail. Operating profit increased by 9% to £20.3m (2004: £18.7m) and, adjusting forgoodwill amortisation, operating profit margins were 8.9% (2004: 9.9%), or 10.0%(2004: 10.3%) on a like-for-like basis*, also reflecting the three fewer workingdays. Net interest payable amounted to £0.3m (2004: nil), reflecting the aggregate£11m cost of the acquisitions of BXTech in February 2003 and UK Pallets. Profitbefore tax totalled £20.0m (2004: £18.7m), up 7%. The tax charge of £6.2m (2004: £6.1m) represents an effective rate of 31.0%,reduced from 2004 (32.6%). Earnings per share were 8% higher, at 25.7p (2004: 23.8p). Net cash inflow from operating activities totalled £21.5m (2004: £22.6m). Netcapital expenditure rose to £6.6m (2004: £5.8m), comprising principally the rollout of new-generation hand-held scanners, and the replacement and expansion ofthe vehicle fleet. Net debt at the year end was unchanged at £5.6m, representing gearing of 10%(2004: 11%). *excluding UK Pallets and UK Mail. DIVIDENDS A final dividend per share of 12.8p (2004: 12.05p), up 6%, is proposed, payableon 21 July 2005 to shareholders on the register at close of business on 1 July2005. The ex-dividend date is 29 June 2005. Together with the interim dividend per share of 6.4p (2004: 5.95p), proposeddividends per share are 7% higher at 19.2p (2004: 18.0p). INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group will be required to prepare its accounts for the year ending 31 March2006 under International Financial Reporting Standards ("IFRS"). The interimresults to 30 September 2005 will be the first reported in line with IFRS. There are two principal changes which will be required to the Group's accountingpolicies under IFRS. These are in relation to the accounting for share-basedawards and goodwill amortisation. The net impact on reported profits is notexpected to be significant, nor to have any effect on cashflow. BUSINESS REVIEW Reflecting the evolution of the Group's activities into three broad categories,the business review below is presented separately for Parcel Services, MailServices and Specialist Distribution Services. Parcel Services Express Express is the Group's core UK business-to-business parcel service, and in theperiod contributed 56% (2004: 65%, after reallocating revenues relating to theRepublic of Ireland to International) of Group turnover. It specialises innext-day deliveries for those customers who need a reliable service backed up bysophisticated information systems, thereby differentiating itself from the highvolume/low price operators. Express made good progress in a market which was challenging throughout theyear, increasing its turnover by 5.4% to £131.3m. Adjusting for the three fewerworking days, Express increased its turnover by 7%, representing a furtherincrease in market share to around 8%. Despite customers tending more towards a standard service, the average rate perconsignment advanced marginally, through strategic price rises and an increasein fuel surcharge as a result of higher oil prices. Further increases in revenuequality, whilst maintaining market share, and the introduction of a BusinessPrint service for customers sending point-of-sale materials, will be the mainfocus for Express in the coming year. International International is responsible for all shipments coming into and leaving the UK,accounting in the period for 12% of Group turnover (2004: 13%, includingrevenues relating to the Republic of Ireland). A high proportion of its businessderives from Business Post's activities as Global Service Participant in the UKfor FedEx. Additionally, as a member of the Eurodis network, Internationalhandles road-based shipments to and from Continental Europe. International increased its turnover by 17% to £28.1m, reflecting theintroduction of a heavyweight distribution service (FedEx International PriorityFreight) from April 2004. International Mail, launched in July 2002 to offerbusiness customers an alternative to Royal Mail for their overseas postalrequirements, again grew substantially, increasing its turnover to £2.4m from£1.6m. Continued development of the Eurodis road arrangement, launched inJanuary 2004, contributed to a 23% increase in Continental European road-bornebusiness. The Eurodis network will benefit in the current year from the 10accession states which have recently joined the EU. HomeServe HomeServe, which accounted for 12% (2004: 9%) of Group turnover, is the Group'sUK business-to-consumer parcel service, providing a high quality time-definiteservice to residential addresses, with full proof of delivery andtrack-and-trace facilities. The home delivery market continues to grow strongly and, through its targetedsales approach focusing on customers requiring a tailored service, HomeServecontinued its recent success, increasing turnover by 54% to £26.8m, representingan eight-fold increase since its relaunch in April 2002. An important element in HomeServe's success is that it concentrates ondelivering high value items and works closely with the customer to achieve afirst time delivery. A substantial contributor to the turnover increase was theWalsh Western contract, which was effective from June 2003, to deliver computersand related equipment. Important new business wins, all of which are expected tocontribute an increased turnover in the current year, included deliveries ofcomputers, household goods and golf equipment for a range of new customers. Under an exclusive distribution agreement with Toronto-based eBox, using anetwork of eBoxes incorporating electronic access devices, trials of secureunattended deliveries commenced in the period and are proceeding satisfactorily. Network Services Network Services is responsible for providing high quality collection anddelivery services to the business units within Parcel Services through a networkof 59 depots (22 corporate and 37 franchised). Network Services moved 37.4 million parcels, up 14% on the previous year,together with over 70 million items of mail. Against the background of thisstrong growth, and the increasingly strong pre-Christmas peak period, NetworkServices incurred additional costs of approximately £0.75m to ensure themaintenance of high quality service levels. During the year, the roll out was completed of 1,500 new scanners for theGroup's collection and delivery drivers; their GPRS and wi-fi capabilitysignificantly improves the speed with which scans can be transferred to theGroup's track-and-trace website both from within its sites and whilst out on theroad. Initiatives designed to enhance further the level of both customer andemployee satisfaction have commenced, and the first half of the current yearwill see significant levels of training and development throughout the network. Mail Services UK Mail, as the first mover in the deregulated UK market for business mail,offers a nationwide two day mail delivery service, operating in both thebusiness-to-consumer and business-to-business markets. Features of the serviceare track-and-trace and flexibility of collection for large mailers. UK Mail has made excellent progress and achieved turnover of £10.2m for theyear, comprising £2.1m in the first half and £8.1m in the second half. At theyear end, less than 11 months after commencing trading, UK Mail had anannualised throughput of approximately 250 million items, approaching 1% of themarket and making UK Mail the largest Downstream Access operator. Customerscover a broad range of sectors, with the March 2005 contract with Royal Bank of Scotland Group (RBSG) representing aground-breaking entry into the VAT-exempt market place. Making full use of theestablished collection, linehaul and delivery expertise of the Group, UK Mailachieved over 98% on-time deliveries. UK Mail achieved monthly profitability by October 2004 and made a small profitfor the year overall. UK Mail has ambitious plans for the current year,including launching new products to address the unsorted segment of the market.Significant advances in market share and profit are expected. Specialist Distribution Services Courier Business Post's Courier activity, which comprises UK Today and BXTech, accountedfor 5% (2004: 5%) of Group turnover, with an increase of 15% to £12.1m. UK Today is the Group's UK nationwide same-day courier service. It operates outof corporate and franchised depots, using dedicated liveried vehicles anduniformed drivers. In the year, UK Today increased its turnover by 25% and itsprofit contribution significantly, rewarding a focus on improved margins. BXTech is the Birmingham-based technical courier active in the IT, medical andutilities sectors. It has a higher proportion of contract-backed business thanthe rest of the Group, including agreements with Blockbuster, Siemens and SevernTrent Water for a range of specialist support services. Under the leadership ofa new Managing Director early in the year, a number of important contracts weresuccessfully renewed and the sales force was strengthened to develop the salespipeline. A focus for the current year is entry into the market for theinstallation of LCD and plasma screens for major manufacturers. UK Pallets UK Pallets provides a nationwide palletised goods delivery service through apartnership network with over 70 independent haulage businesses throughout theUK. Operating from a national hub at Lichfield (Staffordshire), UK Palletscurrently handles nearly 5,000 pallets each night and is estimated to be theUK's fourth largest palletised goods network. UK Pallets generated a turnover of £23.1m, which compares with £14.4m in theeight months to 31 March 2004 and represents 10% of Group turnover. Whilst theturnover increase was 16% year on year, this was below the Board's expectations,reflecting disappointing market conditions throughout the year, which werefurther depressed by poor trading experienced in the retail and parts of thebuilding sectors over Christmas and subsequently. The shortfall in turnovergrowth and the additional cost of a hub extension from September 2004 led to areduced full year profit contribution before goodwill amortisation of £0.8m(2004 8 months: £1.1m). The introduction during the year of UK Pallets Online, which incorporates manytried and tested concepts from the Parcels side of the business, together withchanges in operational management and expansion of the sales team, will benefitthe current year, during which a significantly improved performance is expected. PERSONNEL As announced earlier this month, Russell Hodgson, the Director responsible forParcel Services, will be leaving the Group on 30 September 2005, for healthreasons. Following a restructuring within Parcel Services, the Express,International and HomeServe business units and Network Services will reportdirectly to Paul Carvell, Chief Executive. Russell has contributed substantiallyto the considerable success enjoyed by Business Post since 2001, when he joinedus as Group Operations Director, and we shall be sorry to lose him. STRATEGY The strategy articulated in 2001 has been for Express to remain the Group's coreactivity, growing at a slightly higher rate than GDP, with the Group's otheractivities, either organic or through acquisition, being developed alongsideExpress, each with more rapid growth rates. A substantial advance has beenachieved since 2001 and, relative to the pre-tax profit of £12.7m and earningsper share of 16.9p reported for the year ended 31 March 2001, the underlyingincreases have been 61% and 57%, respectively. As stated in the Interim Announcement last November, the Board believes that theGroup already contains the elements necessary for further substantial profitablegrowth, not only in UK Mail, but also through its other businesses, which arecollectively capable of driving double digit percentage growth. Accordingly, theGroup will continue to focus principally on organic growth. CURRENT TRADING AND PROSPECTS Trading since the year end has been encouraging, with revenues being well aheadof the equivalent period last year and up in all business units. UK Mail hascontinued to win new customers, increase volumes and grow its market share.Service performance levels remain high and Network Services unit costs remaintightly controlled. Overall, the Board expects substantial progress in the current year and remainsvery confident about the Group's long term potential. Peter Kane 17 May 2005Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 March 2005 Unaudited Audited 2005 2004 £m £m Turnover 233.3 192.7 Cost of sales (184.7) (149.6) _____ _____Gross profit 48.6 43.1 Administrative expenses (28.3) (24.4)--------------------------------------------------------------------------------Operating profit before goodwill amortisation 20.8 19.1 Goodwill amortisation (0.5) (0.4)--------------------------------------------------------------------------------Operating profit 20.3 18.7 Net interest payable (0.3) - _____ _____Profit on ordinary activities before taxation 20.0 18.7 Taxation (6.2) (6.1) _____ _____Profit for the financial year 13.8 12.6 Dividends (10.3) (9.6) _____ _____Retained profit transferred to reserves 3.5 3.0 _____ _____ Earnings per share - basic 25.7p 23.8p _____ _____ - diluted 25.3p 23.6p _____ _____Dividends per share 19.2p 18.0p _____ _____ CONSOLIDATED BALANCE SHEET at 31 March 2005 Unaudited Audited 2005 2004 £m (restated) £mFixed assetsIntangible assets 9.0 10.8Tangible assets 34.8 32.7 _____ _____ 43.8 43.5 _____ _____ Current assetsTrade and other debtors 44.7 37.0Franchise debtors 6.0 5.2Cash 3.4 4.6 _____ _____ 54.1 46.8 CreditorsAmounts falling due within one yearOverdraft - (0.2)Term loan (1.0) (1.0)Trade and other creditors (33.5) (29.4) _____ _____ Net current assets 19.6 16.2 _____ _____ Total assets less current liabilities 63.4 59.7 CreditorsAmounts falling due after more than one yearTerm loan (8.0) (9.0) Provisions for liabilities and charges (1.9) (1.6) _____ _____ Net assets 53.5 49.1 _____ _____ Capital and reservesCalled up share capital 5.4 5.3Share premium account 12.2 10.3Profit and loss account 37.1 33.6Treasury/ESOT shares (1.2) (0.1) _____ _____ Equity shareholders' funds 53.5 49.1 _____ _____ CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2005 Unaudited Audited 2005 2005 2004 2004 £m £m £m £m Operating profit 20.3 18.7 Depreciation and amortisation 5.0 4.3Increase in working capital (3.8) (0.4) ____ ____Net cash inflow from operating activities 21.5 22.6 Returns on investments and servicing of finance Interest received 0.4 0.4Interest paid (0.7) (0.4)Issue costs of hedging instrument - (0.2) ____ ____ (0.3) (0.2) Tax paid (6.1) (5.5) Capital expenditure and financial investment Purchase of fixed assets (6.7) (5.9)Proceeds from sale of fixed assets 0.1 0.1 ____ ____ (6.6) (5.8) Acquisition of subsidiary 0.6 (9.6) Equity dividends paid (9.9) (9.1) ____ ____ Net cash outflow before financing (0.8) (7.6) Financing Term loan (1.0) 10.0 Purchase of shares for ESOT (1.2) - Issue of ordinary share capital 2.0 0.4 ____ ____ (Decrease)/increase in cash (1.0) 2.8 ____ ____ NOTES 1. The financial information set out above does not constitute theCompany's statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The statutory accounts of the Company for the year ended 31 March 2004have been delivered to the Registrar of Companies. The auditors' report on thoseaccounts was unqualified and did not contain any statements under Section 237(2)or (3) of the Companies Act 1985. The financial information for the year ended 31 March 2005 is unaudited. Thisinformation has been prepared using the same accounting policies as in the 31March 2004 statutory accounts and, once finalised, the accounts will bedelivered to the Registrar of Companies following the Annual General Meeting on12 July 2005. 2. Basic earnings per share have been calculated by dividing the profit forthe year by the weighted average number of ordinary shares in issue for the yearended 31 March 2005 of 53,586,502 (2004: 53,155,846). 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 54,475,411 (2004: 53,569,272). 3. Urgent Issues Task Force Bulletin No 38 - Accounting for Employee ShareOwnership Plan trusts - became effective during the year. Under this Bulletin,the Group's holding of shares in an Employee Share Ownership Trust in respect ofcommitments under the Long Term Incentive Plan are now reported as a deductionfrom shareholders' funds. In prior years, these shares were reported as aninvestment in own shares within Fixed Assets. A prior year adjustment of £0.1mhas been made in respect of the balance at 31 March 2004. 4. Cash includes cash in transit of £1.4m at 31 March 2005. The prior yearcomparative does not include an equivalent amount as it is not considered to bematerial. 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