Business Post announces preliminary results for the year ended 31 March 2005
Preliminary Announcement
Tuesday 17 May 2005
Business Post, the UK's leading independent express delivery company, announces that, in the year ended 31 March 2005, it continued to enjoy considerable success.
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 Board expects substantial progress in the current year and remains very confident about the Group's long term potential. In particular, the Board is encouraged by the prospects for UK Mail, which remains on track for a 3% market share by the end of its third year."
Enquiries:
Business Post Group plc
Paul Carvell (Chief Executive) 0121-335 1111
Peter Fitzwilliam (Finance Director) 01753-706 070
Chairman's Statement
I am pleased to report that, in the year ended 31 March 2005, Business Post enjoyed 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 faster growth, in all cases at least 15%.
The most recently launched business, UK Mail, which commenced trading in May 2004, had an outstanding first year and is on track to achieve the Group’s prediction 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 contribution from UK Pallets, which was acquired in July 2003, and an initial contribution from UK Mail.
Operating profit increased by 9% to £20.3m (2004: £18.7m) and, adjusting for goodwill 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 working days.
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. Profit before 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). Net capital expenditure rose to £6.6m (2004: £5.8m), comprising principally the roll out of new-generation hand-held scanners, and the replacement and expansion of the 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, payable on 21 July 2005 to shareholders on the register at close of business on 1 July 2005. The ex-dividend date is 29 June 2005.
Together with the interim dividend per share of 6.4p (2004: 5.95p), proposed dividends 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 March 2006 under International Financial Reporting Standards (“IFRS”). The interim results 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 accounting policies under IFRS. These are in relation to the accounting for share-based awards and goodwill amortisation. The net impact on reported profits is not expected to be significant, nor to have any effect on cashflow.
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Business Review
Reflecting the evolution of the Group’s activities into three broad categories, the business review below is presented separately for Parcel Services, Mail Services and Specialist Distribution Services.
Parcel Services
Express
Express is the Group’s core UK business-to-business parcel service, and in the period contributed 56% (2004: 65%, 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.
Express made good progress in a market which was challenging throughout the year, increasing its turnover by 5.4% to £131.3m. Adjusting for the three fewer working days, Express increased its turnover by 7%, representing a further increase in market share to around 8%.
Despite customers tending more towards a standard service, the average rate per consignment advanced marginally, through strategic price rises and an increase in fuel surcharge as a result of higher oil prices. Further increases in revenue quality, whilst maintaining market share, and the introduction of a Business Print service for customers sending point-of-sale materials, will be the main focus 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%, 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 to and from Continental Europe.
International increased its turnover by 17% to £28.1m, reflecting the introduction of a heavyweight distribution service (FedEx International Priority Freight) from April 2004. International Mail, launched in July 2002 to offer business customers an alternative to Royal Mail for their overseas postal requirements, again grew substantially, increasing its turnover to £2.4m from £1.6m. Continued development of the Eurodis road arrangement, launched in January 2004, contributed to a 23% increase in Continental European road-borne business. The Eurodis network will benefit in the current year from the 10 accession states which have recently joined the EU.
HomeServe
HomeServe, which accounted for 12% (2004: 9%) 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 continues to grow strongly and, through its targeted sales approach focusing on customers requiring a tailored service, HomeServe continued its recent success, increasing turnover by 54% to £26.8m, representing an eight-fold increase since its relaunch in April 2002.
An important element in HomeServe's success is that it concentrates on delivering high value items and works closely with the customer to achieve a first time delivery. A substantial contributor to the turnover increase was the Walsh Western contract, which was effective from June 2003, to deliver computers and related equipment. Important new business wins, all of which are expected to contribute an increased turnover in the current year, included deliveries of computers, household goods and golf equipment for a range of new customers.
Under an exclusive distribution agreement with Toronto-based eBox, using a network of eBoxes incorporating electronic access devices, trials of secure unattended deliveries commenced in the period and are proceeding satisfactorily.
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 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 this strong growth, and the increasingly strong pre-Christmas peak period, Network Services incurred additional costs of approximately £0.75m to ensure the maintenance of high quality service levels.
During the year, the roll out was completed of 1,500 new scanners for the Group's collection and delivery drivers; their GPRS and wi-fi capability significantly improves the speed with which scans can be transferred to the Group's track-and-trace website both from within its sites and whilst out on the road. Initiatives designed to enhance further the level of both customer and employee satisfaction have commenced, and the first half of the current year will see significant levels of training and development throughout the network.
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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 the business-to-consumer and business-to-business markets. Features of the service are track-and-trace and flexibility of collection for large mailers.
UK Mail has made excellent progress and achieved turnover of £10.2m for the year, comprising £2.1m in the first half and £8.1m in the second half. At the year end, less than 11 months after commencing trading, UK Mail had an annualised throughput of approximately 250 million items, approaching 1% of the market and making UK Mail the largest Downstream Access operator. Customers cover a broad range of sectors, with the March 2005 contract with Royal Bank of Scotland Group (RBSG) representing a ground-breaking entry into the VAT-exempt market place. Making full use of the established collection, linehaul and delivery expertise of the Group, UK Mail achieved over 98% on-time deliveries.
UK Mail achieved monthly profitability by October 2004 and made a small profit for 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, accounted for 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 out of corporate and franchised depots, using dedicated liveried vehicles and uniformed drivers. In the year, UK Today increased its turnover by 25% and its profit contribution significantly, rewarding a focus on improved margins.
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. Under the leadership of a new Managing Director early in the year, a number of important contracts were successfully renewed and the sales force was strengthened to develop the sales pipeline. A focus for the current year is entry into the market for the installation of LCD and plasma screens for major manufacturers.
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 nearly 5,000 pallets each night and is estimated to be the UK’s fourth largest palletised goods network.
UK Pallets generated a turnover of £23.1m, which compares with £14.4m in the eight months to 31 March 2004 and represents 10% of Group turnover. Whilst the turnover increase was 16% year on year, this was below the Board’s expectations, reflecting disappointing market conditions throughout the year, which were further depressed by poor trading experienced in the retail and parts of the building sectors over Christmas and subsequently. The shortfall in turnover growth and the additional cost of a hub extension from September 2004 led to a reduced 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 many tried and tested concepts from the Parcels side of the business, together with changes in operational management and expansion of the sales team, will benefit the current year, during which a significantly improved performance is expected.
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Personnel
As announced earlier this month, Russell Hodgson, the Director responsible for Parcel Services, will be leaving the Group on 30 September 2005, for health reasons. Following a restructuring within Parcel Services, the Express, International and HomeServe business units and Network Services will report directly to Paul Carvell, Chief Executive. Russell has contributed substantially to the considerable success enjoyed by Business Post since 2001, when he joined us 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 core activity, growing at a slightly higher rate than GDP, with the Group’s other activities, either organic or through acquisition, being developed alongside Express, each with more rapid growth rates. A substantial advance has been achieved since 2001 and, relative to the pre-tax profit of £12.7m and earnings per share of 16.9p reported for the year ended 31 March 2001, the underlying increases have been 61% and 57%, respectively.
As stated in the Interim Announcement last November, 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 principally on organic growth.
Current Trading and Prospects
Trading since the year end has been encouraging, with revenues being well ahead of the equivalent period last year and up in all business units. UK Mail has continued to win new customers, increase volumes and grow its market share. Service performance levels remain high and Network Services unit costs remain tightly controlled.
Overall, the Board expects substantial progress in the current year and remains very confident about the Group’s long term potential.
Peter Kane
Chairman
17 May 2005
Consolidated Profit & Loss Account
for the year ended 31 March 2005
Unaudited
2005
£m Audited
2004
£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
Earnings per share – diluted 25.3p 23.6p
Dividends per share 19.2p 18.0p
Consolidated Balance Sheet
at 31 March 2005
Unaudited
2005
£m Audited
2004
(restated)
£m
Fixed assets
Intangible assets 9.0 10.8
Tangible assets 34.8 32.7
43.8 43.5
Current assets
Trade and other debtors 44.7 37.0
Franchise debtors 6.0 5.2
Cash 3.4 4.6
54.1 46.8
Creditors
Amounts falling due within one year
Overdraft – (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
Creditors
Amounts falling due after more than one year
Term loan (8.0) (9.0)
Provisions for liabilities and charges (1.9) (1.6)
Net assets 53.5 49.1
Capital and reserves
Called up share capital 5.4 5.3
Share premium account 12.2 10.3
Profit and loss account 37.1 33.6
Treasury/ESOT shares (1.2) (0.1)
Equity shareholders' funds 53.5 49.1
Consolidated Cash Flow Summary
for the year ended 31 March 2005
Unaudited Audited
2005
£m 2005
£m 2004
£m 2004
£m
Operating profit
20.3
18.7
Depreciation and amortisation 5.0 4.3
Increase in working capital (3.8) (0.4)
Net cash inflow from operating activities 21.5 22.6
Returns on investment and servicing of finance
Interest received 0.4 0.4
Interest 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
Increase/(decrease) in cash (1.0) 2.8
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 2004 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 2005 is unaudited. This information has been prepared using the same accounting policies as in the 31 March 2004 statutory accounts and, once finalised, the accounts will be delivered to the Registrar of Companies following the Annual General Meeting on 12 July 2005.
Basic earnings per share have been calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue for the year ended 31 March 2005 of 53,586,502 (2004: 53,155,846). 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 54,475,411 (2004: 53,569,272).
Urgent Issues Task Force Bulletin No 38 – Accounting for Employee Share Ownership Plan trusts – became effective during the year. Under this Bulletin, the Group’s holding of shares in an Employee Share Ownership Trust in respect of commitments under the Long Term Incentive Plan are now reported as a deduction from shareholders’ funds. In prior years, these shares were reported as an investment in own shares within Fixed Assets. A prior year adjustment of £0.1m has been made in respect of the balance at 31 March 2004.
Cash includes cash in transit of £1.4m at 31 March 2005. The prior year comparative does not include an equivalent amount as it is not considered to be material.
