Business Post Interim Results for the 6 months ended 30 September 2004

Chairman's Statement
I am pleased to announce a 12% increase in profit before goodwill amortisation and tax to £9.1m. These results continue to deliver progress in line with the Group’s Three Year Plan. The successful launch of UK Mail, and the continuing fast rates of growth in the HomeServe, Courier, International and UK Pallets businesses, are particularly pleasing.

Financial Review
Turnover increased by 23% to £109.9m (2003: £89.4m), representing like-for-like growth of 13% together with a full year contribution from UK Pallets, which was acquired in July 2003, and an initial contribution from UK Mail, which commenced trading in May 2004.

Operating profit increased by 13% to £8.9m (2003: £7.9m) after deducting goodwill amortisation of £0.3m (2003: £0.1m). The operating margin reduced to 8.1% from 8.8%, mainly as a result of the initial trading losses of UK Mail and the lower margins in the recently-acquired UK Pallets; on a like-for-like basis, the operating margin increased.

Interest receivable of £0.1m in 2003 became interest payable of £0.1m, reflecting the impact of the cash costs of the two acquisitions in calendar 2003, partly offset by organic cash generation. Pre-tax profit was up 10% at £8.8m (2003: £8.0m) and earnings per share were up 7% at 11.2p (2003: 10.5p).

Period end net debt of £10.1m compared with £13.9m last year and £5.6m at 31 March 2004 – cash balances traditionally being stronger at the year-end. Capital expenditure in the period increased to £4.5m from £3.8m, reflecting the roll-out of new generation hand-held scanning equipment across the network. Good working capital management, together with scheduled repayments of loans made to franchisees, resulted in net cash inflow from operating activities of £8.3m (2003: £6.0m).

Dividend
In line with the Board’s policy of progressively increasing dividends per share whilst also increasing dividend cover, an interim dividend per share of 6.4p (2003: 5.95p), up 8%, has been declared. The dividend will be paid on 4 January 2005 to shareholders on the register on 10 December 2004, with an ex-dividend date of 8 December 2004.

Business Review
Parcel Services
Express

Express is the Group’s core UK business-to-business parcel service, and in the period contributed 59% (2003: 69%, after reallocating revenues relating to the Republic of Ireland to International) of Group turnover. It specialises in next-day deliveries for those customers who need a reliable service backed up by sophisticated information systems, thereby differentiating itself from the high volume/low price operators.

The market for express deliveries remains competitive. Against this background, turnover in the first half was 6% higher at £65.2m (2003: £61.5m), bearing out predictions in the Preliminary Announcement of increased growth in the current financial year and equivalent, the Group estimates, to a market share of approximately 7½%.

Express’ 20,000 customers cover a wide cross-section in terms of both sectors and size, with a significant representation of Small and Medium-sized Enterprises. The focus continues to be on customers seeking a top-of-the-range service and those sending priority shipments.

International

International is responsible for all shipments coming into and leaving the UK, accounting in the period for 12% of Group turnover (2003: 13% including revenues relating to the Republic of Ireland). A high proportion of its business derives from Business Post’s activities as Global Service Participant in the UK for FedEx. Additionally, as a member of the Eurodis network, International handles road-based shipments both into and out of Europe.

Benefiting in part from faster cross-border growth rates than those in the domestic market, and the business’s association with FedEx, the world’s premier international shipper, turnover in the period was 19% higher at £13.6m (2003: £11.4m). Substantial contributors to the increased turnover were International Mail, which was launched in July 2002, and FedEx International Priority Freight, which started in April 2004. The Eurodis road arrangement, which with effect from January 2004 provides an enhanced delivery network across Europe with full on-line track-and-trace capabilities, is progressing well.

Homeserve

HomeServe, which accounted for 10% (2003: 8%) 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.

The home delivery market is a more complex one than business-to-business, requiring a specialised approach to overcome the risk of extensive unsuccessful delivery attempts. By focusing on high value products and working closely with customers, HomeServe’s success continued, with turnover in the six months 57% higher at £10.8m (2003: £6.9m). Work for Walsh Western International, to deliver computers and related equipment, is increasing and HomeServe also won Dixons Stores Group and PC World as new customers in the period.

HomeServe continues to explore offering a wider range of drop-off points and, in particular, secure unattended delivery options. Under an exclusive distribution agreement with Toronto-based eBox, trials have recently commenced using a network of eBoxes for the collection of parts by field service engineers using electronic access devices.

Network Services

Network Services is responsible for providing high quality collection and delivery services to the business units within Parcel Services through a network of 59 owned and franchised sites.

During the period, the level of on-time deliveries remained consistently high and cost increases were kept well below the rate of inflation. Investment in the franchise network continued, designed to generate higher levels of growth and further improvements in the quality of service provided. The creation of Parcel Services is progressing well, with benefits from operational gearing resulting in an improvement in Parcel Services’ gross profit margins.

As well as managing unit costs tightly, the other focus for Network Services continues to be on increasing the levels of satisfaction amongst customers, employees and associates. A major programme of service enhancements is being developed and implementation will commence in the second half of the year. By supplementing the already high levels of on-time deliveries with enhanced customer care, the Group expects to achieve further improvements in retention levels and accelerate growth.

Courier
Business Post’s Courier activity, which comprises UK Today and BXTech, accounted for 6% (2003: 6%) of Group turnover. Turnover increased by 24% to £6.2m (2003: £5.0m).

UK Today is the Group’s UK nationwide same-day courier service. It operates out of both corporate and franchise depots, using dedicated liveried vehicles. UK Today increased its turnover by 39% and its profit margin substantially, having overcome its problem last year in recruiting high quality owner drivers at the same rate as the growth of the business.

BXTech is the Birmingham-based technical courier active in the IT, medical and utilities sectors. It has a higher proportion of contract-backed business than the rest of the Group, including agreements with Blockbuster, Siemens and Severn Trent Water for a range of specialist support services. During the period, BXTech successfully renewed a number of its existing contracts and enlarged its sales effort ahead of a planned expansion of the business.

UK Pallets
UK Pallets provides a nationwide palletised goods delivery service through a partnership network with over 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 palletised goods network.

Turnover in the first six months totalled £11.0m (2003 nine weeks: £3.6m), representing 10% (2003: 4%) of Group turnover. Against the full six months of the prior year (including the period prior to acquisition), turnover was 18% higher. Following a review of the earn-out accounts, the initial consideration has been reduced by £0.6m to £9.0m, and no deferred consideration is payable.

UK Pallets has recently completed a major re-livery programme to take full advantage of its membership of the Group. It has also commenced the transfer of IT know-how in order to input collection and delivery information and allow for the imminent introduction of track-and-trace. Further growth is anticipated from the commissioning in September 2004 of an extension to the national hub, increasing daily capacity from 4,000 pallets to 8,000, and from restructuring the operational management and strengthening the sales team. This investment in the future has reduced profits in the first six months and will do so, to a lesser extent, in the second half of the year.

UK Mail
UK Mail offers a nationwide two day mail delivery service, operating in both the business-to-consumer and business-to-business markets. Features of the service are track-and-trace up to the point of hand-over to Royal Mail, for final mile delivery, and flexibility of collection for large mailers. UK Mail contributed a turnover of £2.1m in the period, representing 2% of Group turnover.

UK Mail commenced trading in May 2004, and has since moved over 23 million items, securing customers in the telecoms, utilities, government and retail sectors. It currently has an annualised turnover of over £12m and remains on budget, with an expectation to become profitable during the second half of the current financial year. Altogether, it has been a highly satisfactory start.

Current Trading and Prospects
The Group has established a firm reputation for quality and innovation within the express delivery market in the UK. The Board believes that the Group already contains the elements necessary for further substantial profitable growth, not only in UK Mail but also through its other businesses, which are collectively capable of driving double digit percentage growth. Accordingly, the Group will continue to focus on time-definite delivery services and expects to concentrate principally on organic growth supplemented by bolt-on acquisitions as opportunities arise. These services will increasingly be cross-sold by the different business units so as to leverage the customer base and maximise the benefits of operational gearing.

The Group’s strong financial performance and excellent cash flow characteristics place the Group in a good position to continue investing in new products and services and create further differentiation from its competitors. Trading since 30 September has been encouraging and the Board expects further good progress in the second half of the year.

Peter Kane
Chairman
16 November 2004

Business Post wins from new mail deal
Financial Times UK, London Ed1, p 27 11-17-2004
By By SHARLENE GOFF

First-half sales at Business Post rose 23 per cent as the express delivery group enticed customers from competitors and broadened its range of services.

The group, which in February became the first to strike a deal with Royal Mail to tap into the last mile of its delivery network, said its mail division was on track to make a profit in the second half of the year. "We are benefiting from a first mover advantage," said Paul Carvell, chief executive.

Postal groups are taking advantage of the liberalisation of the UK market, which has allowed competition in the business-toconsumer market for bulk mailings. TMT, the Dutch postal operator, has launched a UK mail service, and Deutsche Post of Germany has also reached a deal with Royal Mail.

Mr Carvell expected the group's UK mail division to have 3 per cent of the Pounds 5.6bn UK market within three years. He also predicted a rise in divisional turnover from a current annualised Pounds 12m this year to an annualised Pounds 150m by the end of its third year.

Group pre-tax profit rose from Pounds 8m to Pounds 8.8m, while total sales jumped from Pounds 89.4m to Pounds 109.9m in the six months to September 30. Express, its core business-to-business parcel service, outperformed the market with a 6 per cent rise in sales to Pounds 65.2m as the group "lost less and won more customers".

Sales at HomeServe, Business Post's business-to-consumer parcel service, rose 57 per cent to Pounds 10.8m, while turnover at its international operations rose 19 per cent to Pounds 13.6m.

The interim dividend is raised to 6.4p (5.95p), from earnings per share of 11.2p (10.5p). The company's shares rose 16 1/2p to 570p.