UK Business Post shares plummet by 14%

Shares in Business Post fell 14 per cent yesterday after the mail delivery group issued its fourth profit warning within 12 months after failing to improve margins at its core business.

The UK's fourth-largest mail operator said full-year pre-tax profit would be about Pounds 9m after margins at itsparcel services business – which accounts for 70 per cent of turnover – had failed to pick up.

Guy Buswell, the new chief executive, said the company had lost "quite a few customers" over the past 12 months through lack of service and a sales force motivated to sell only tobigger customers.

The company has recently initiated a "root-and-branch" review of costs including streamlining the company's senior management, especially in divisions that need margin improvement.

The review also identified a need to invest Pounds 1.5m in the company's franchise network. Additional costs relating to the overhaul will be about Pounds 4.5m in the current year, Business Post said.

Mr Buswell said he expected the benefits of his turnround strategy to come through at the end of 2006.

Andrew Beh, analyst at ING, said in a research note: "Clearly, one man cannot right this ship, nor can the correction occur so quickly. This is a very disappointing result."

Part of the company's parcels unit delivers items such as computers to a range of customers. But deteriorating economic conditions on the high street have caused a falling off in volumes.

Customers have also downgraded service requirements and are not using the most expensive delivery options. Mr Buswell said: "When Business Post last went to the City, the expectations were that selling prices would improve and costs would be lower. That has not happened."

Margins were "pretty much at zero", he added.

The group said trading at its specialist distribution services unit was satisfactory and its UK mail division continued to trade ahead of expectations, attracting significant levels of new business.

One analyst said: "Heads have rolled and costs are being taken out. The company is effectively suggesting that some of the expectations of the former chief executive were in cloud- cuckoo land."

He added: "You can't push through price increases when volumes have been gradually falling away as the economy slows down."

Last September, shares in the company slumped 27 per cent after it said pre-tax profit would be 20 per cent short of market expectations, or about Pounds 14.8m.

Guy Buswell has been a director on the board of Business Post since 1998. He was made managing director of the group's UK Mail arm in July 2002.

Its shares fell 14 per cent, or 57 1/2p, to 352p yesterday.

More junk mail
Financial Times UK, London Ed1, Sec. COMPANIES UK, p 16 01-28-2006
By By ANDREW HILL

No postman worth his salt wants to tell customers that he does not know when he will deliver. That, however, was the gist of Guy Buswell's presentation to analysts yesterday – his first since taking over as chief executive of Business Post last month.

The mail delivery company weathered one mild profit warning last April, but yesterday's was the third – and perhaps the most damaging – since then. The parcels operation was expected to raise selling prices and reduce costs. It failed on both counts, missing out on the Pounds 3m contribution that increased margins would have provided. Customers seem to have balked at the group's "tactical" approach to prices – adding surcharges and changing rates for specific clients.

Mr Buswell promises a "root and branch" review. He has sliced the operating management from 17 to 10 – incurring more one-off costs for a longer-term saving – and urged the sales force to target smaller customers. They pay more per parcel than big clients and yet can be served by existing collection and delivery vans.

However, nobody can predict when such initiatives will bear fruit. The UK Mail subsidiary, which collects and sorts letters from business customers, is doing better than expected. Mr Buswell is confident of renewing a contract with FedEx in March. With the shares trading at half their 12-month high, there are bid rumours. The cheque, you might say, is still in the post.