Business Post Group plc Preliminary Announcement
Business Post Group plc
Preliminary Announcement 18 May 2004
Results Presentation
Highlights
Chairman's Statement
Consolidated Profit & Loss Account
Consolidated Balance Sheet
Consolidated Cash Flow Summary
Results Presentation
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Business Post, one of the UK’s leading express delivery companies, announces another year of successful progress in line with the Three Year Plan set out in November 2001. In particular, pre-tax profit increased substantially and a strong base has been established for further profitable development.
Financial Highlights
Turnover increased by 23% to £192.7m.
Profit before goodwill amortisation (of £0.4m) and tax was up 19% at £19.1m.
Earnings per share before goodwill amortisation increased by 16% to 24.5p.
Net cash inflow from operating activities rose strongly to £22.6m from £13.7m.
Dividends per share of 18.0p, up 7%, are proposed.
Commercial Highlights
Express, the Group’s core UK business-to-business parcel service, improved the quality of its revenue and further increased its market share to some 7½% on turnover up 3% to £127.5m.
International, which is primarily a business-to-business service, increased its turnover by 17% to £21.2m. The relationship with FedEx as its UK Global Service Participant remains strong and International Mail continues to develop strongly.
HomeServe, the Group’s UK business-to-consumer parcel service, increased its turnover by an excellent 129% to £17.4m, following an underlying 130% increase in 2003.
Weaver Pallet Express, a significant palletised goods delivery business, was acquired in July 2003. Rebranded UK Pallets, Business Post’s most significant acquisition to date provides entry into a UK pallet network market experiencing annual growth of around 30%.
February 2004’s access agreement with Royal Mail enabled UK Mail, the Group’s business mail subsidiary, to commence operations. On 10 May 2004, UK Mail commenced daily collections on behalf of a blue chip company.
Peter Kane, Chairman, stated “Trading since the year end has been encouraging. Both volumes and yields in April were ahead of the equivalent period last year and volumes so far in May have advanced further. The Board expects further good progress in the current year and remains very confident about the Group’s long term potential.”
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Chairman's Statement
I am pleased to report another year of successful progress in line with the Three Year Plan set out in November 2001. In particular, pre-tax profit increased substantially and a strong base has been established for further profitable development. Of special note has been the further market share advances in the core Express business-to-business market, strong growth in HomeServe, operating in the business-to-consumer market, the acquisition of Weaver Pallet Express (since re-branded as UK Pallets), a significant palletised goods delivery business, and the signing of an agreement with Royal Mail which enables UK Mail, our business mail subsidiary, to commence operations.
Financial Review
The financial results for the year ended 31 March 2004 relate to the second year in the Group’s Three Year Plan. During the year, turnover increased by 23% to £192.7m (2003: £156.3m), representing like-for-like growth of 11% and a contribution from the acquisitions of BXT (since re-branded as BXTech) in February 2003 and UK Pallets at the end of July 2003.
Operating profit before goodwill amortisation increased by 22% to £19.1m (2003: £15.6m), representing like-for-like growth of 13% and growth from acquisitions of 9%. After deducting goodwill amortisation of £0.4m (2003: nil), operating profit increased by 20% to £18.7m. Operating margins before goodwill amortisation were 9.9% (2003: 10.0%), diluted slightly from 10.1% on a like-for-like basis by the acquisition of UK Pallets.
Interest receivable was £nil (2003: £0.5m), reflecting the impact of the aggregate £11.5m cash costs of the two acquisitions. Profit before goodwill amortisation and tax was £19.1m (2003: £16.1m), up 19%. After goodwill amortisation, pre-tax profit increased by 16% to £18.7m (2003: £16.1m).
The tax charge of £6.1m (2003: £4.9m) represents an effective tax rate of 32.6% (2003: 30.4%), reflecting the effects of non-allowable goodwill amortisation of £0.4m and prior year deferred tax adjustments of £0.3m. Earnings per share excluding goodwill amortisation were 24.5p (2003: 21.2p), and 23.8p (2003: 21.2p) after goodwill amortisation. These represent increases of 16% and 12% respectively.
Net cash inflow from operating activities rose strongly, from £13.7m to £22.6m, reflecting improved working capital management, particularly in the second half, and higher profits. Net capital expenditure rose to £5.8m (2003: £4.1m), reflecting the continuing investments being made in double-decked trailers and IT.
After £11.5m of aggregate acquisition costs, the Group’s net debt position was £5.6m, representing gearing of 11%.
Dividends
A final dividend per share of 12.05p (2003: 11.3p), up 7%, is proposed, payable on 22 July 2004 to shareholders on the register at close of business on 2 July 2004. The ex-dividend date is 30 June 2004.
Together with the interim dividend per share of 5.95p (2002: 5.6p), proposed dividends per share are 7% higher at 18.0p (2003: 16.9p), covered 1.36 x (2003: 1.25 x) by EPS before goodwill amortisation (1.32 x after goodwill amortisation), in line with the Board’s policy of increasing dividend cover whilst also increasing dividends per share.
Business Review
Parcel Services
Express
Express, which accounted for 66% (2003: 79%) of Group turnover, is the Group’s core UK business-to-business parcel service. It specialises in next-day deliveries for those customers who need a reliable service backed up by sophisticated information systems, thereby differentiating itself from high volume/low price operators.
Express made good progress against subdued market conditions, improving its market share to some 7½% and increasing its annual turnover by 3% to £127.5m (2003: £123.8m). The high quality of delivery performance continues to assist in new business wins and reduction of customer churn. Express implemented a number of pricing initiatives at the end of last year which have held up well during the year, and also improved the quality of revenue by targeting users of premium services and by discontinuing less profitable business.
Recent levels of new business wins have been among the Company’s highest on record and there are initial indications that the high-tech sector may be experiencing a recovery. Express will maintain its focus on quality of revenue in the current year, positioning itself further at the premium end of the market, and will also look to introduce new services to existing customers. The Directors therefore expect increased growth from Express in the current financial year.
International
International, which accounted for 11% (2003: 12%) of Group turnover, is responsible for all shipments coming into and leaving the UK and the Republic of Ireland and is primarily a business-to-business service. A high proportion of its activity derives from Business Post’s agreement with FedEx, the world’s largest express transportation company, as its Global Service Participant in the UK. Under this contract, Business Post is responsible for collecting and delivering parcels for FedEx customers in those areas of the UK not directly served by FedEx, and Business Post offers a full outward-bound air express service utilising the worldwide FedEx delivery network. Additionally, as a member of the Eurodis network, International handles road-based express shipments within Europe.
International increased its turnover during the year by 17% to £21.2m (2003: £18.2m), with an increased rate of growth in the second half. International Mail continues to develop strongly, offering business customers an alternative to Royal Mail for their overseas postal requirements. First launched in July 2002, it increased its turnover to £1.6m from £0.3m. FedEx-related business also showed good progress, reflecting the higher rates of growth in cross-border shipments than the domestic market. The relationship remains strong, and FedEx has recently awarded Business Post its international priority freight business, extending the existing collection and delivery activity from small packages to bulkier freight items.
The new Eurodis road arrangement, providing a new delivery network across Europe with full on-line track and trace capabilities, was launched on schedule in January 2004 and increased both outbound and inbound turnover in the fourth quarter. Also in January 2004, International expanded its operations in the Republic of Ireland through the appointment of Nightline, an independent eight depot business, to carry out its deliveries. This provides a strong platform for services into this important trading region.
Homeserve
HomeServe, which accounted for 9% (2003: 5%) of Group turnover, is the Group’s UK business-to-consumer parcel service, providing a high quality time-definite service to residential addresses, with full proof of delivery and track-and-trace facilities.
During the year, HomeServe increased its turnover by 129% to £17.4m (2003: £7.6m). The continued success of HomeServe, following an underlying increase of 130% last year, reflects a rapidly growing market and a targeted sales approach, concentrating on the upper end of the market where customers are looking for a high quality time-definite delivery service.
HomeServe will continue to focus its sales efforts on major manufacturers and retailers and will also continue to explore new services, offering improved service and a wider range of drop-off points
Network Services
Network Services is responsible for providing high quality collection and delivery services to the business units within Parcel Services at a low unit cost.
During the year, the level of on-time deliveries remained consistently high and cost increases were kept well below inflationary levels. As was reported in the Interim Announcement, the operation benefited from the continued introduction of double-decked trailers, which enable more parcels to be shipped in one vehicle movement, and from the introduction of a new breed of hand-held scanner. Capital expenditure of £1.6m was incurred during the year on these two initiatives and a further £2.1m will be spent in the current year as the new scanners are rolled out across the network.
As the major employer in the Group, Network Services’ principal challenges for the current financial year are to enhance further the level of both employee and customer satisfaction. Customers are already benefiting from the Group’s new Customer Relationship Management software, Discovery, and further action is planned to enhance its use and give customers improved service when they contact our depots.
Courier
Business Post’s Courier activity, which comprises UK Today and BXTech, accounted for 5% (2003: 3%) of Group turnover. During the year, Courier increased its turnover by 133% to £10.5m (2003: £4.5m).
UK Today is the Group’s UK nationwide same-day courier service. It operates out of corporate and franchised depots, using dedicated delivery vehicles, and has access to the National Express coach network linking 1,200 locations each day. UK Today increased its turnover by 48%, with customer wins both nationally and locally, but its gross profit margins fell as difficulty was experienced in recruiting high quality owner drivers at the same rate as the growth of the business. In the current year, growth rates for UK Today will be lower, but the current focus on improved margins is expected to result in a strong increase in profit.
BXTech, the Birmingham-based technical courier active in the technical, medical and utilities sectors, continues to progress well. After a period of consolidation in its first year in the Group, the emphasis in the current year will be to expand the geographical spread of activities. The company’s first ever technical sales director has been appointed, with a focus on desktop support services.
UK Pallets
UK Pallets provides a nationwide express palletised goods delivery service through a partnership network with 70 independent haulage businesses throughout the UK. Operating from a national hub at Lichfield (Staffordshire), UK Pallets currently handles more than 4,000 pallets each night and is estimated to be the UK’s fourth largest pallet network company, in a market that is experiencing annual growth of around 30%.
In the eight months since its acquisition, UK Pallets generated a turnover of £14.4m, a substantial increase on the comparable period of the previous year and representing 8% of Group turnover. In the period to 31 March 2004, operating profits before goodwill amortisation totalled £1.1m.
A focus for the current financial year is the transfer of existing IT expertise from Business Post’s parcel businesses to benefit UK Pallets’ customers and partnership network. Additionally, following the receipt of planning permission in January 2004, it is intended to double the size of its national hub by September 2004 to enable it to handle daily volumes of up to 8,000 pallets.
UK Mail
On 10 February 2004, following an extended period of negotiation, UK Mail and Royal Mail signed the first agreement of its kind in Europe, on mutually satisfactory terms. This enables access to Royal Mail’s downstream delivery network for UK Mail’s Business Class service, which offers two day mail delivery with track-and-trace up to the point of handover to Royal Mail and flexibility of collection for large mailers (initially, businesses mailing over 4,000 and, typically, over 10,000 pre-sorted letters a day).
We were delighted to reach an amicable agreement with Royal Mail. The terms we agreed were substantially similar to those that would have been determined by Postcomm. Following successful trials during April, on 10 May 2004, UK Mail commenced daily collections on behalf of a blue chip company, and it is also in advanced stages of negotiation with other significant mailers.
Personel
In October 2003, Russell Hodgson, Group Operations Director, was promoted to Group Managing Director, Parcel Services. Thereby, in addition to his responsibilities for Network Services, Russell assumed responsibility for the Express, International and HomeServe business units.
As announced on 30 March 2004, Richard Saville will retire as a non-executive Director with effect from 31 May 2004, having been a non-executive Director since October 1998. His replacement, who was appointed with effect from 1 April 2004, is Philip Stephens, aged 61, who was involved in corporate finance and broking for more than 35 years until his retirement in 2002.
To all the Group employees and associates who are involved in the owned and franchised depots, I extend my thanks on behalf of all shareholders.
Current Trading and Prospects
Trading since the year-end has been encouraging. Both volumes and yields in April were ahead of the equivalent period last year and volumes so far in May have advanced further.
The Board expects further good progress in the current year and remains very confident about the Group’s long term potential.
Peter Kane
Chairman
18 May 2004
Consolidated Profit & Loss Account
for the year ended 31 March 2004
2004
Continuing Operations
£m 2004
Acquired Businesses
£m Unaudited
2004
£m Audited
2003
£m
Turnover
178.3
14.4
192.7
156.3
Cost of sales (137.8) (11.8) (149.6) (122.1)
Gross profit 40.5 2.6 43.1 34.2
Administrative expenses (22.6) (1.8) (24.4) (18.6)
Operating profit before goodwill amortisation 18.0 1.1 19.1 15.6
Goodwill amortisation (0.1) (0.3) (0.4) –
Operating profit 17.9 0.8 18.7 15.6
Net Interest receivable – 0.5
Profit on ordinary activities before taxation 18.7 16.1
Taxation (6.1) (4.9)
Profit for the financial year 12.6 11.2
Dividends (9.6) (9.0)
Retained profit transferred to reserves 3.0 2.2
Earnings per share – basic 23.8p 21.2p
Earnings per share – diluted 23.6p 21.2p
Dividends per share 18.0p 16.9p
The profit for the financial year is derived from continuing activities and includes all recognised gains and losses for the year.
Consolidated Balance Sheet
at 31 March 2004
Unaudited
2004
£m Audited
2003
£m
Fixed assets
Intangible assets 10.8 1.7
Tangible assets 32.7 30.4
Investments 0.1 0.1
43.6 32.2
Current assets
Trade and other debtors 37.0 28.9
Franchise debtors 5.2 6.0
Cash 4.6 1.6
46.8 36.5
Creditors
Amounts falling due within one year
Overdraft (0.2) –
Term loan (1.0) –
Trade and other creditors (29.4) (21.9)
Net current assets 16.2 14.6
Total assets less current liabilities 59.8 46.8
Creditors
Amounts falling due after more than one year
Term loan (9.0) –
Provisions for liabilities and charges (1.6) (1.0)
Net assets 49.2 45.8
Capital and reserves
Called up share capital 5.3 5.3
Share premium account 10.3 9.9
Profit and loss account 33.6 30.6
Equity shareholders' funds 49.2 45.8
Consolidated Cash Flow Summary
for the year ended 31 March 2004
Unaudited Audited
2004
£m 2004
£m 2003
£m 2003
£m
Operating profit
18.7
15.6
Depreciation and amortisation 4.3 3.3
Decrease/(increase) in amounts due from franchisees 1.8 (0.5)
Increase in other debtors (3.6) (6.3)
Increase in creditors and provisions 1.4 1.6
Net cash inflow from operating activities 22.6 13.7
Returns on investment and servicing of finance
Interest received 0.4 0.5
Interest paid (0.4) –
Issue costs of hedging instrument (0.2) –
(0.2) (0.5)
Tax paid (5.5) (4.9)
Capital expenditure and financial investment
Purchase of fixed assets (5.9) (4.3)
Proceeds from sale of fixed assets 0.1 0.2
Acquisition of subsidiary (9.6) (1.9)
(15.4) (6.0)
Equity dividends paid (9.1) (8.6)
Net cash outflow before financing (7.6) (5.3)
Financing
Term loan 10.0 –
Issue of ordinary share capital 0.4 0.2
Increase/(decrease) in cash (2.8) (5.1)
Notes
The financial information set out above does not constitute the Company’s statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts of the Company for the year ended 31 March 2003 have been delivered to the Registrar of Companies. The auditors’ report on those accounts 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 2004 is unaudited. This information has been prepared using the same accounting policies as in the 31 March 2003 statutory accounts and, once finalised, the accounts will be delivered to the Registrar of Companies following the Annual General Meeting on 13 July 2004.
Basic earnings per share have been calculated by dividing the profit for the financial year by the weighted average number of ordinary shares in issue for the year ended 31 March 2004 of 53,155,846 (2003: 53,048,564). 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 53,569,272 (2003: 53,115,478).
