DX Services plc – trading update
DX Services plc is the UK's leading independent provider of early morning, next day mail services. The group delivers over one million items each day and operates a UK wide, end-to-end network including collection, sortation and final mile delivery.
DX Services plc is providing a trading update in advance of entering its close period prior to the release of its interim results for the six months to 31 December 2005 which it expects to announce on 7 March 2006.
The Document Exchange
Revenue from the Document Exchange is expected to be around £41 million in the six months to 31 December 2005 (£42.9 million in 2004). Whilst revenue has benefited from the price increase introduced in April 2005, DX has felt the effects of the general slowdown in the property market and operational changes in the financial services sector.
Parcels
Revenue from Parcels is expected to be around £21 million for the six months to
31 December 2005 (£21.3 million in 2004). The significant additional Parcels revenue expected from new customers has been achieved, although this has been offset by an overall reduction in volumes due to general market conditions.
Revenue from Mail is expected to be around £2.4 million for the six months to 31 December 2005 (£2.6 million in 2004). We are encouraged that a number of mailroom management companies have now started to use the DX Mail product, and the Mail run rate at 31 December is estimated to be £5 million.
A significant marketing campaign for DX Mail services was undertaken in the period leading up to full market deregulation, including advertising over the London Underground network, and unprompted awareness of the DX brand has increased significantly.
Costs
The group is experiencing reduced volumes from existing Document Exchange customers, particularly in respect of property and financial services, and also in Parcels due to the effects of the downturn in general market conditions. The impact on profit is compounded as the cost of delivering to these exchanges and customers remains unchanged in the short term. The new Parcels business requires delivery to addresses that had not previously been served, resulting in an increase in network costs.
The group expects to charge costs relating to the transition of its senior management of around £1 million in the income statement for the six months to
31 December 2005.
Net debt
DX remains strongly cash generative. Before the share buy back programme, net debt would have been around £61 million, compared with £68.4 million at
31 December 2004. We estimate that net debt at 31 December 2005 was £70 million.
Dividend
The Board intends to continue with its progressive dividend policy, and will pay the interim dividend on 12 May 2006 to shareholders on the register on 18 April 2006.
Outlook
Following the final stage of postal services liberalisation on 1 January 2006, DX plans to enhance its position as the best quality low-cost carrier of mail whilst providing the highest levels of customer service and retention.
DX has a unique legacy in its existing Document Exchange business which continues to be very cash generative. The appointment of a new CEO in November last year has resulted in the company re-examining the market opportunities and begin to implement a more robust approach to the development of a new mail and parcels business built around the exchange network, reflecting lessons learnt.
The directors see limited prospect of volumes in the Document Exchange and in Parcels increasing in the short term. Revenues are now expected to be lower than had previously been anticipated. Furthermore, the group's new DX Mail product and volumes from new Parcels customers are proving to be more costly to deliver than had previously been assumed.
As a result of the anticipated reduction in revenues and increase in delivery costs, operating profit (before costs relating to the senior manager transition) is now expected to be around 12% below prior year levels on a like for like basis.
Paul Kehoe, Chief Executive of DX Services plc, commented:
'I am naturally disappointed that I have to use this statement, the first following my appointment as Chief Executive, to report that profits will be worse than had previously been anticipated. However, I am confident that the strategies in place and the actions we are taking will result in an improved performance in the new liberalised market. Having reviewed the business, I am convinced that we have an excellent platform – the Document Exchange – on which to build a successful mail delivery business.
I am also encouraged by the quality of our people within the business. I believe that the broad strategy for the business is right, but we need to realign our focus around the Document Exchange and its network, which will provide the platform for delivering excellent service to our customers, an enjoyable and rewarding environment for our people, and enhanced profitability for our shareholders.
We are going to be the best low-cost carrier in the market but with a focus on service delivery and service quality.'
Contacts:
John Maxwell, Chairman, DX Services plc + 44 (0) 1753 630630
Paul Kehoe, Chief Executive, DX Services plc + 44 (0) 1753 630630
Peter Western, Acting Finance Director, DX Services plc + 44 (0) 1753 630630
Jon Coles, Brunswick Group + 44 (0) 20 7404 5959
Rupert Young, Brunswick Group + 44 (0) 20 7404 5959
There will be a conference call for analysts and investors at 09.00 on Friday
6 January 2006, which can be accessed by dialling +44 (0) 1452 541 076. The call will be recorded and available for ten days on +44 (0) 1452 55 00 00, access number 3996212£.
This information is provided by RNS
The company news service from the London Stock Exchange
