Business Post trading statement

The Board of Business Post announces that it now expects pre-tax profits for the full year to 31 March 2006 to be substantially below last year’s. This in part reflects a reduced expectation of normal trading for Express, the UK business-to-business parcel delivery service. The Board has also identified additional costs, amounting to approximately £3m in the current year, for supporting the franchise network, and has decided to make a £3.2m provision against amounts owed by certain franchises relating to prior years. Excluding the one-off provision, the year-on-year reduction in pre-tax profit to 31 March 2006 is expected to be around 10%.

Normal Trading

The reduced expectations of profit from normal trading reflect a sharp decline in the rate of growth of volumes in Express in response to deteriorating economic conditions. Whilst daily volumes at the start of the year were 8% above those a year earlier, market conditions have progressively deteriorated to the point where daily volumes in August were below those last year. The rate of decline appears to have slowed in September, and Express revenue for the first half is now expected to be 3% above last year.

The other components of Parcel Services (HomeServe and International) have continued their double-digit growth in the five months to 31 August 2005. HomeServe, Business Post’s UK business-to-consumer parcel delivery service, increased its revenue by 42%, whilst International, Business Post’s cross-border delivery service, increased its revenue by 11%, albeit this was below management’s expectations. Overall, for the half year to 30 September 2005, Parcel Services is expected to increase its revenue by approximately 9%.

To prepare for the broadening of capability associated with the Group’s expanding range of services, in anticipation of higher volume growth and to maintain record levels of customer service, the Group made investments which have increased the cost base in Network Services this year. In addition, the Group incurred a number of cost increases. Consequently, the decline in volume growth has had a disproportionate effect on profit.

To rectify this situation, since July the Group has implemented a number of initiatives on three fronts – costs, prices and volumes. Redundancies have been made in support areas, and reductions in direct operating cost have been made. Prices have been selectively raised, and the sales force is being restructured and re-energised under new management to improve further market share.

Specialist Distribution Services (which comprises UK Pallets and Courier) has continued to trade well; revenue growth in the first five months was 14% and profit was well ahead of last year’s. UK Pallets, the Group’s palletised goods delivery service, increased its revenue by 16%. The two courier businesses, UK Today and Business Post Technical Couriers, increased their aggregate revenue by 12%.

UK Mail has continued to make excellent progress. Revenue for the five months to 31 August 2005 totalled £11.5m and profit is tracking ahead of expectations. UK Mail remains the leading alternative to Royal Mail in the business mail market. It continues to make important client wins, is trialling with some very substantial organisations, and awaits the result of several significant new business pitches. Its unsorted mail service, which started in Swindon in April 2005, has made a good start and will shortly operate out of four depots.

Franchise Network

Following the appointment of a new Franchise Director, the Group has undertaken a detailed review of its franchise operations. With the increasing complexity of the Group’s activities, coupled with the deteriorating economic background, this review has highlighted the need to provide an increased level of support for certain franchises. As a result, the Board has decided to restructure certain of the existing franchising arrangements by diverting existing central sales resource to service the franchise network and incorporating additional commission-sharing incentive arrangements so as to put franchises on a more profitable footing. The Board estimates the cost of this additional support to amount to approximately £3m in the current year, and has decided to make a provision of £3.2m against amounts owed by certain franchises relating to prior years.

Notes for Editors:
Business Post has a parcel network of 59 depots, of which 25 are owned and 34 are franchised.