14th Nov 2005 07:02
Business Post Group PLC14 November 2005 BUSINESS POST GROUP PLC - INTERIM RESULTS AND CURRENT TRADING Business Post announces results for the half year ended 30 September 2005 inline with the trading statement of 21 September 2005, which highlighted abelow-expectations performance by Express and the franchise network, togetherwith successful trading in the rest of the Group. This interim announcement isbeing made today, earlier than planned, in the light of a revision in theBoard's expectations of the outcome for the full year. With regard to the halfyear: • Turnover increased by 21% to £133.0m. • Profit before tax and exceptional item totalled £6.2m (2004: £8.6m), impacted by the difficult economic conditions. The reported pre-tax profit was £3.0m (2004: £8.6m). • Basic earnings per share before exceptional item totalled 8.5p (2004: 11.0p), or 4.3p (2004: 11.0p), unadjusted. • Parcel Services (comprising Express, International and HomeServe) increased revenue by 8.6% to £97.7m, representing 73% of the Group total, but experienced mixed fortunes in a market that was among the most challenging in the Group's recent history. Express, the UK B-2-B business, found conditions increasingly difficult, but HomeServe, the UK B-2-C business, increased its revenue by almost 40% and International increased its revenue by 12%. • Specialist Distribution Services (comprising UK Pallets and Courier) made strong progress, increasing revenue by nearly 17% to £20.4m, representing 15% of the Group total, and more than doubling its operating profit to £1.5m. • UK Mail made excellent progress, increasing revenue almost six-fold, to £14.6m, representing 11% (2004: 2%) of the Group total. In line with the ahead-of-schedule market penetration, currently estimated at approximately 2%, an operating profit of £1.1m (2004: loss of £0.5m) was achieved. • The Board remains confident of the Group's potential and, accordingly, has declared an unchanged interim dividend per share of 6.4p. Peter Kane, Chairman, stated: "Since 21 September 2005, market conditions withinParcel Services have deteriorated, to the point where daily volumes in Novemberare marginally below last year's and below our previous expectations. Inaddition, Express prices remain under pressure. In the absence of an improvement in market conditions, second half revenue inParcel Services is now expected to be lower than last year's. Although tradingin Specialist Distribution Services and Mail Services is expected to remainstrong and the Group's annual results have a historic second-half bias, theBoard now believes that the profit before tax and exceptional items for the yearwill be around 20% below current market expectations." Presentation:This morning, from 9:30am to 10:30am, an analyst meeting will be held at Regus,CityPoint, 1 Ropemaker Street, London EC2Y 9HT. This replaces the presentation orginally planned for Tuesday 15 November. Enquiries:Business Post Group plcPaul Carvell (Chief Executive) 0121-335 1111Peter Fitzwilliam (Finance Director) 01753-706 070 Bankside Consultants LimitedCharles Ponsonby 020-7367 8851 [email protected] CHAIRMAN'S STATEMENT In the six months to 30 September 2005, good progress was made in both MailServices and Specialist Distribution Services, but difficult economic conditionsimpacted Parcel Services, primarily Express and our franchise network. This wassignalled in the Trading Statement of 21 September 2005 in which we indicatedthat the Group's results for both the full year and half year would be belowexpectations. The Board also identified in that announcement additional costs,amounting to approximately £3m in the current year, for supporting the franchisenetwork and decided to make a £3.2m exceptional provision against amounts owedby certain franchises relating to prior years. FINANCIAL REVIEW The accompanying interim consolidated financial statements for the half yearended 30 September 2005 are presented in accordance with International FinancialReporting Standards ("IFRS"). Since this is the first period in respect of whichthe Company has reported under IFRS, comparative figures for the half year to 30September 2004, and for the year to 31 March 2005, have been restated. Turnover increased by 21% to £133.0m (2004: £109.9m), with UK Mail, whichcommenced operations on 10 May 2004, contributing just over one-half of the£23.1m increase. Without UK Mail, the turnover increase would have been 10%. Gross profit reduced to £22.1m (2004: £22.8m), reflecting a reduced gross profitmargin of 16.6% (2004: 20.7%) after £1.5m of additional franchise support costsAdministrative expenses before the exceptional item of £3.2m increased by 12% to£15.8m (2004: £14.1m). After unchanged interest payable of £0.1m, profit beforetax was £3.0m (2004: £8.6m). Adjusted pre-tax profits, before the exceptionalitem, totalled £6.2m (2004: £8.6m) after charging £0.5m (2004: £0.5m) ofshare-related costs under IFRS. The effective tax rate of 23.3% (2004: 31.4%) reflects credits relating to theexercise of share options in the current and prior years. Excludingshare-related elements, the effective tax rate was 30.2% (2004:30.8%). Adjusted to exclude the exceptional item, basic earnings per share totalled 8.5p(2004: 11.0p). The reported basic earnings per share was 4.3p (2004: 11.0p). Period end net debt of £12.2m compared with £10.1m last year and £5.6m at 31March 2005, borrowings traditionally being lower at the year end. Capitalexpenditure in the period totalled £5.7m (2004: £4.5m), of which £1.3m relatedto UK Mail's expansion into the unsorted mail market. With shareholders' fundstotalling £58.1m (2004: £57.3m), gearing increased to 21% (2004: 18%). DIVIDEND The Board remains confident of the Group's potential and, accordingly, hasdeclared an unchanged interim dividend of 6.4p per share. The dividend will bepaid on 3 January 2006 to shareholders on the register on 9 December 2005, withan ex-dividend date of 7 December 2005. 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, utilising the shared infrastructure of owned and franchisedparcel depots (Network Services). During the period, Parcel Services increased revenue by 8.6% to £97.7m,representing 73% of the Group total, but experienced mixed fortunes in a marketwhich was among the most challenging in the Group's recent history. Whilst Express started the year well, with daily volumes 8% ahead of theprevious year, market conditions progressively deteriorated to the point wheredaily volumes in September were 3.5% below those last year. As a consequence,Express increased its revenue by only 2.9% to £67.5m; adjusting for the twoadditional working days in the period, the increase was 1.3%. Ahead of contract re-tendering with FedEx next year, International increased itsrevenue by 12% to £15.2m, reflecting both the traditionally higher rates ofgrowth within the cross-border market and also the Group's success in developingfurther its road-based services to Continental Europe and its international mailservice. HomeServe increased its revenue by almost 40% to £15.0m, continuing thestrong growth achieved in recent years. A substantial contributor to theincrease in revenue was again the delivery of computers and related equipment,with an increasing emphasis on evening deliveries. UK collections and deliveries within Parcel Services are effected by NetworkServices through a network of some 60 depots, utilising both owner-drivers andfranchising to achieve flexibility within its cost base. Whilst roughly 60% ofNetwork Services' costs are variable, the remainder are fixed and, as aconsequence, the sharp decline in volume growth within Express resulted in asignificant reduction in profits. This impact was accentuated by the recent costincreases in Network Services resulting from the Group's enhancement of itscapabilities to accommodate both a significant increase in volumes and alsogreater complexity of services. As a result, Parcel Services' operating profit,before the exceptional item, reduced to £10.0m (2004: £15.0m). Throughout this challenging period, Business Post believes that it has been ableto maintain its market share. In response to the impact of market conditions,and as reported in the Trading Statement of 21 September 2005, a number ofinitiatives have been implemented on three fronts - costs, prices and volumes.Redundancies have been made in support areas, direct operating costs have beenreduced and prices have been selectively raised. The sales force has beenrestructured and re-energised under new management to improve further marketshare. These initiatives have had little impact on the first half's results butare expected to have a positive impact on profit margins in the second half. As was also reported in the Trading Statement, following the appointment of anew Franchise Director, the Group has undertaken a detailed review of itsfranchise operations, which currently comprise 33 locations. With the increasingcomplexity of the Group's activities, coupled with the deteriorating economicbackground, this review highlighted the need to provide an increased level ofsupport for certain franchises. The cost of this additional support in thecurrent year is estimated at approximately £3m, of which £1.5m has been chargedagainst direct costs in the period. In addition, the Board decided to make aprovision of £3.2m against amounts owed by certain franchises relating to prioryears. This has been charged against administrative expenses as an exceptionalitem. After these franchise-related costs, Parcel Services' operating profitswere £6.8m (2004: £15.0m). The Board's review has identified a number of areas in which the financialhealth of the franchise network can be improved and the implementation of aseries of initiatives in the second half of the year is expected to limit thelevel of support required in future years. Specialist Distribution Services Specialist Distribution Services comprises the Group's overnight palletisedgoods delivery (UK Pallets) and same-day courier (Courier) activities. Duringthe period, Specialist Distribution Services made strong progress, increasingrevenue by nearly 17% to £20.4m, representing 15% of the Group total, and morethan doubling its operating profits to £1.5m (2004: £0.7m). Following the difficult economic conditions experienced in the second half oflast year, it is particularly pleasing to report an increase in UK Pallets'revenue of 20% to £13.6m, reflecting the benefits of expanded sales activity.With a substantial increase in profit in the period and prospects looking good,UK Pallets is on track for the significantly improved performance predicted inMay's preliminary announcement. Business Post's Courier activity also made goodprogress. Revenue increased by 10% to £6.8m and overall profit margins increasedsubstantially. 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 and utilising thecollection and delivery activities of Network Services. In the period, UK Mailmade excellent progress, increasing revenue almost six-fold to £14.6m,representing 11% (2004: 2%) of the Group total. As well as securing a number of sizeable new business wins with customerssending pre-sorted mail, the launch in April of UK Mail's service for unsortedmail has been well received. Market penetration has, to date, been ahead of theBoard's expectations, and market share in terms of volumes is currentlyestimated at approximately 2%, maintaining Business Post as the leadingalternative to Royal Mail in the business mail market. In line with the ahead-of-schedule market penetration, operating profits of£1.1m (2004: loss of £0.5m) were achieved in the period. With further businesswins since the period end, some important trials in progress and the result ofseveral tenders awaited, prospects for the second half and beyond remain verygood. CURRENT TRADING AND PROSPECTS Since 21 September 2005, market conditions within Parcel Services havedeteriorated, to the point where daily volumes in November are marginally belowlast year's and below our previous expectations. This is primarily due to lowerExpress volumes than last year and a decline in volumes for a major customer inHomeServe. In addition, Express prices remain under pressure. Trading in theother business segments has remained strong. The Board was already tackling the issues of costs, prices and volumes in ParcelServices and is reviewing these plans in the light of current market conditions.As previously reported, the Board is also implementing certain profitimprovement initiatives within the franchise network and we continue to expectthese to limit the additional support required in the current year toapproximately £3m. In the absence of an improvement in market conditions, second half revenue inParcel Services is now expected to be lower than last year's. Although tradingin Specialist Distribution Services and Mail Services is expected to remainstrong and the Group's annual results have a historic second-half bias, theBoard now believes that the profit before tax and exceptional items for the yearwill be around 20% below current market expectations. Peter Kane 14 November 2005Chairman CONSOLIDATED INCOME STATEMENT for the six months ended 30 September 2005 --------- --------- -------- Note Unaudited Unaudited Unaudited Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m --------- --------- -------- Revenue 2 133.0 109.9 233.3 Cost of sales (110.9) (87.1) (184.7) --------- --------- -------- Gross profit 22.1 22.8 48.6 Administrative expenses (19.0) (14.1) (28.7)---------------------- ------ --------- --------- -------- Operating profit beforeexceptional item 6.3 8.7 19.9 Exceptional administrativeexpenses 3 (3.2) - ----------------------- ------ --------- --------- -------- Operating profit 2 3.1 8.7 19.9 Net interest payable (0.1) (0.1) (0.3) --------- --------- --------Profit before taxation 3.0 8.6 19.6 Tax on profit on ordinaryactivities (0.7) (2.7) (5.9) --------- --------- --------Profit for the period 2.3 5.9 13.7 --------- --------- -------- Earnings per share - basic 4 4.3p 11.0p 25.6p --------- --------- -------- Earnings per share - diluted 4 4.2p 10.9p 25.2p --------- --------- -------- Earnings per share - adjusted * 4 8.5p 11.0p 25.6p --------- --------- -------- The profit for the financial period is derived from continuing activities andincludes all recognised income and expenses for the period. * Adjusted earnings per share have been calculated excluding the exceptional itemand the associated tax impact CONSOLIDATED BALANCE SHEET at 30 September 2005 ---------------------- ---------- --------- -------- Unaudited Unaudited Unaudited 30 September 30 September 31 March 2005 2004 2005 £m £m £m---------------------- ---------- --------- --------AssetsNon-current assetsGoodwill 9.5 9.4 9.5Intangible assets 0.8 0.5 0.6Investment properties 1.1 1.2 1.1Property, plant and equipment 36.1 33.4 33.1Trade and other receivables 0.5 1.1 3.3Deferred tax 0.4 1.1 1.8 ---------- --------- -------- 48.4 46.7 49.4 ---------- --------- -------- Current assetsInventories 0.2 0.1 0.2Trade and other receivables 51.6 48.7 47.2Cash and cash equivalents 0.5 0.9 3.4 ---------- --------- -------- 52.3 49.7 50.8 ---------- --------- --------LiabilitiesCurrent liabilitiesBorrowings (5.7) (3.0) (1.0)Trade and other payables (27.0) (23.3) (23.8)Current tax (1.0) (3.1) (2.8)Provisions (0.1) (0.1) (0.1) ---------- --------- -------- (33.8) (29.5) (27.7) ---------- --------- -------- ---------- --------- --------Net current assets 18.5 20.2 23.1 ---------- --------- -------- Non-current liabilitiesBorrowings (7.0) (8.0) (8.0)Deferred tax (1.5) (1.3) (1.4)Provisions (0.3) (0.3) (0.4) ---------- --------- -------- (8.8) (9.6) (9.8) ---------- --------- -------- ---------- --------- --------Net assets 58.1 57.3 62.7 ---------- --------- -------- Shareholders' fundsShare capital 5.4 5.4 5.4Share premium 14.5 11.0 12.2Retained earnings 38.2 40.9 45.1 ---------- --------- -------- 58.1 57.3 62.7 ---------- --------- -------- CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 September 2005--------------------------- ----------- ---------- ------- Unaudited Unaudited Unaudited Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m--------------------------- ----------- ---------- ------- Operating profit 3.1 8.7 19.9Exceptional item 3.2 - -Depreciation and amortisation 2.5 2.1 4.5Increase in working capital (1.7) (3.0) (3.8)Interest paid (0.1) (0.1) (0.3)Tax paid (2.6) (2.5) (6.1)Other non cash items 0.6 0.5 0.9 ------------ ---------- -------Net cash inflow from operatingactivities 5.0 5.7 15.1 ------------ ---------- ------- Acquisitions - - 0.6Capital expenditure (5.7) (4.5) (6.6) ------------ ---------- -------Net cash used in investing activities (5.7) (4.5) (6.0) ------------ ---------- ------- Equity dividends paid (6.9) (6.4) (9.9)Issue of share capital 2.3 0.7 2.0Purchase of treasury shares (1.3) - (1.2)Repayment of term loan (1.0) (1.0) (1.0) ------------ ---------- -------Net cash used in financing activities (6.9) (6.7) (10.1) ------------ ---------- ------- Net decrease in cash and cashequivalents (7.6) (5.5) (1.0) Cash and cash equivalents atbeginning of period 3.4 4.4 4.4 ------------ ---------- -------Cash and cash equivalents at end ofperiod (4.2) (1.1) (3.4) ------------ ---------- ------- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the six months ended 30 September 2005--------------------------- --------- --------- --------- Unaudited Unaudited Unaudited Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m--------------------------- --------- --------- --------- Opening shareholders' funds 62.7 56.0 56.0Effect of adopting IAS 39 (0.1) - - --------- --------- ---------Opening shareholders' funds underIFRS 62.6 56.0 56.0Dividends (6.9) (6.4) (9.8)Purchase of treasury shares (1.3) - (1.2)Employees' share option scheme:- value of employee services (0.9) 1.0 2.0- proceeds from shares issued 2.3 0.8 2.0Profit for the period 2.3 5.9 13.7 --------- --------- ---------Closing shareholders' funds 58.1 57.3 62.7 --------- --------- --------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General Information The interim financial statements for the six months to 30 September 2005 havebeen prepared using the accounting policies the Group expects to adopt in its2006 Annual Report. These accounting policies are based on the EU-adoptedInternational Financial Reporting Standards (IFRS) and International FinancialReporting Interpretations Committee (IFRIC) interpretations that the Groupexpects to be applicable at that time. The IFRS and IFRIC interpretations thatwill be applicable at 31 March 2006, including those that will be applicable onan optional basis, are not known with certainty at the time of preparing theseinterim financial statements. These interim financial statements have been prepared on a modified historicalcost basis. These are the first set of interim statements since adopting IFRSand therefore reflect the exemptions provided under the first time adoptionrules of IFRS 1. The Group's consolidated financial statements were prepared in accordance withUK GAAP until 31 March 2005. The Group has applied the same accounting policiesand methods of computation in these interim financial statements as thosepublished by the Group within the report "Transition to International FinancialReporting Standards" published on 14 November 2005, where the effects of changesin accounting policies arising as a result of the adoption of IFRS are set out. The financial information contained in this interim statement does notconstitute accounts as defined by Section 240 of the Companies Act 1985. Theinterim report has neither been audited nor reviewed by the Group's auditors. The interim report will be circulated to all shareholders and copies areavailable on the Group's website or from the Company's head office: ExpressHouse, 464 Berkshire Avenue, Slough, SL1 4PL. The statutory accounts for 2005, which were prepared under UK GAAP, have beendelivered to the Registrar of Companies. The auditors' opinion on those accountswas unqualified and did not contain a statement under section 237 of theCompanies Act 1985. 2. Segmental analysis--------------------- --------- --------- --------- Unaudited Unaudited Unaudited Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m--------------------- --------- --------- --------- RevenueParcel Services 97.7 90.0 187.0Specialist DistributionServices 20.4 17.5 35.3Mail Services 14.6 2.1 10.2Central 0.3 0.3 0.8 --------- --------- --------- 133.0 109.9 233.3 --------- --------- --------- Operating profitParcel Services - before exceptional 10.0 15.0 30.3 items - exceptional item (3.2) - - --------- --------- --------- 6.8 15.0 30.3Specialist DistributionServices 1.5 0.7 1.9Mail Services 1.1 (0.5) 0.0Central (6.3) (6.5) (12.3) --------- --------- --------- 3.1 8.7 19.9 --------- --------- --------- 3. Exceptional item The exceptional item of £3.2m represents a provision against amounts owed bycertain franchises relating to prior years. 4. Earnings per ordinary share Earnings per share have been calculated by dividing the profit for the periodafter taxation by 53,883,375 for the six months ended 30 September 2005, by53,436,798 for the six months ended 30 September 2004 and by 53,586,502 for theyear ended 31 March 2005, representing the weighted average number of sharesissued for each period. Diluted earnings per share have been calculated by adjusting the weightedaverage number of shares for the effect of the exercise of share options andLTIP awards. Adjustments of 1,028,066 for the six months ended 30 September2005, 850,652 for the six months ended 30 September 2004 and 888,909 for theyear ended 31 March 2005 have been made, thereby increasing the number of sharesto 54,911,441, 54,287,450, and 54,475,411 respectively. Adjusted earnings per share have been calculated excluding the exceptional itemand the associated tax impact. 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