Business Post caught in parcels downturn

Parcels group Business Post sent its shares into tailspin today by delivering its second profits warning in three months.

Investors reeled from the news that Business Post was no longer handling as many parcels a day as it was last year and its annual profits were now likely to fall 20% short of market hopes.

Volumes at its Express unit, which makes overnight deliveries between businesses, were up 8% at the start of the year but have worsened since then to be 3.5% below 2004 levels in September.

This matters because 40% of the costs of operating its network of around 60 depots are fixed, reducing the freedom of Business Post to act when volumes fall.

Business Post, whose UK Mail arm is a rival to Royal Mail, said it had raised prices selectively and made a number of job cuts to protect its results – but the benefits of these initiatives would be felt between October and March.

Pre-tax profits before exceptional items fell to £6.2 million during the six months to September 30 from £8.6 million at the same stage of last year. Revenues from Parcel Services, which represents three-quarters of all business and includes the Express unit, increased 8.6% to £97.7 million.

Chairman Peter Kane said: “In the absence of an improvement in market conditions, second-half revenues in parcel services is now expected to be lower than last year's.”

Revenues from its second-largest division, which distributes goods on pallets and offers same-day courier services, were up 17% at £20.4 million, whilst UK Mail turned over six times as much money as last year.

Although trading in both these businesses was expected to remain strong, Mr Kane said: “The board now believes that the profit before tax and exceptional items for the year will be around 20% below current market expectations.”

ING analyst Andrew Beh said the two warnings since September meant that Business Post is now set to produce profits that are 60% below expectations at the start of the year.

Having already cut his estimates for full-year profits to £16 million in the wake of the first warning, he expected a significantly lower figure than the £20.5 million of profits achieved last year.

Shares in Business Post slumped 102.5p to 331p today, meaning they have now halved in value in just three months.

Mr Beh said UK Mail was the “one bright spot” in the statement and it now represents 11% of group turnover in just one year of operation.

The operation collects post from customers and processes it through its network of 64 sites – the largest of which is in Birmingham – before passing it to Royal Mail for delivery by local postmen.

Slough-based Business Post set up the service after regulator Postcomm gave companies the right to enter the UK market in 2003.

ends< Business Post slides after second warning
Financial Times UK, London Ed1, Sec. COMPANIES UK, p 25 11-15-2005
By By PHILIP STAFFORD

Shares in Business Post Group, the mail delivery company, lost more than a quarter of their value yesterday after it delivered its second profit warning in two months along with its interim results.

The group warned that the slowing UK economy had hit its Express business-to-business division and consequently full-year results would be about 20 per cent below market expectations.

The UK's fourth-biggest mail delivery operator said market conditions had deteriorated since its September 21 trading statement to the point where daily volumes were 3.5 per cent below last year's levels. At the beginning of this financial year, daily volumes appeared to be running 8 per cent ahead of the previous year.

Paul Carvell, chief executive, admitted that the group did not see the bottom of the market. "Fundamentally the strategy is fine. We see (the downturn) as reversible, we just don't know when," he said.

Paul Jones, an analyst at Numis Securities, cut his forecasts for the current financial year to March 2006 from Pounds 18.5m to Pounds 14m and from Pounds 22m to Pounds 16m the following year. He also moved his rating from "hold" to "sell".

The abrupt slowdown has largely caught the company unawares. In July, it told its annual meeting it was trading in line with expectations and the shares hit 685p.

Yesterday the company said turnover for the six months to September 30 rose 21 per cent to Pounds 133m but pre-tax profit slid from Pounds 8.6m to Pounds 3m. Earnings per share fell from 11p to 4.3p. The dividend was unchanged at 6.4p.

Business Post shares fell 116 1/2p to 317p.

FT Comment

*The picture at Business Post gets cloudier rather than clearer. The business is heavily geared to economic growth but it is unclear when that will happen. Its contract with FedEx, the US postal group, is up for renewal next March and while Business Post is confident of victory against rival operators, there is always the risk of failure, which would be a big blow. But the postal delivery market is consolidating and talk of a takeover would hardly be surprising in the current climate. That might provide the only relief for shareholders in the next six months.