Exel interim results
29 July 2002
Exel reports strong profit growth
Robust trading despite difficult markets
Strong cash generation
Six months to 30 June 2002 2001 %
£m £m Change
Turnover – continuing operations 2,235 2,175 2.7
Operating Profit – continuing 107.5 102.9 4.5
operations 1
Operating Profit – discontinued – (1.3)
operations 1
Net Interest (7.2) (13.0)
Profit Before Tax1 100.3 88.6 13.2
Basic Earnings Per Share1 22.7p 19.6p 15.8
Dividend Per Share 7.5p 7.0p 7.1
1 before goodwill and exceptional items
Highlights
* Strong profit growth in mixed markets
* Freight management outperformed underlying markets to deliver sound results
* Turnaround of underperforming operations and new business growth more than
offsets weak technology and automotive markets
* Strong free cash flow of £60.9m : interest cover 15 times (2001: 8 times)
* Annualised new contract gains exceeded £350m in first half of 2002
* Current trading supports full year market expectations
John Allan, Chief Executive of Exel, commented:
"Exel's resilient business model and its strong global spread and balance of
activities has helped the Group generate solid results during the first six
months of 2002. With major customers continuing to outsource more of their
logistics needs, Exel remains well positioned to benefit from these initiatives
and to achieve its medium term growth objectives.
Notwithstanding the current financial impact of the weaker dollar, the Group
remains confident that, barring any deterioration in global trading conditions,
Exel should achieve market expectations for 2002."
For further information please contact:
Exel plc
John Allan, Chief Executive
John Coghlan, Deputy CEO and Group FD
John Dawson, Director of Corporate Affairs
On 29 July: +44 20 7678 0152
Generally: +44 1344 744409
The Maitland Consultancy
Martin Leeburn / Brian Hudspith
+44 20 7379 5151
Presentation of Results
The presentation of results will be held today at 9:00am at ABN Amro, 250
Bishopsgate, London.
Conference call for Analysts, Institutions and other Interested Parties
John Allan and John Dawson will be hosting a conference call today from 1:30pm
UK time for further questions concerning the results. The contact number for
the call from the UK is 0845 2453471 and +44 1452 542300 from outside the UK.
Please ask to be connected to the `Exel Interim's Call, Chairman John Allan'.
Once prepared, a transcript of the call will be posted to www.exel.com.
For anyone unable to join the call, there will be an `Encore' facility
available for seven days after the call. Dial in from the UK is 0845 2455205
and from the outside the UK, dial +44 1452 550000, access code 661293.
Interim Report
During the first six months of 2002 Exel delivered solid overall performance
despite weak underlying volumes in some of the Group's major markets. Against
this backdrop Exel achieved steady growth, driven by strong net contract gains
over the last two years which more than offset volume weaknesses in certain
markets. In addition Exel made significant progress turning around several of
its underperforming operations and improving operational efficiencies elsewhere
across the Group. As a result profit before tax, goodwill and exceptional items
has increased by 13% and basic earnings per share, on the same basis, by 16%.
Free cash flow generation has once again been very positive and the Group goes
forward with a strong balance sheet with gearing reduced to 23.4%.
Exel has continued to secure new business wins, totalling over £350m on an
annualised basis in the first six months of 2002. Net of the impact of contract
losses, the annualised turnover gains exceed £220m. At the same time the Group
has managed to secure several major contract logistics renewals which, through
enhanced services and performance initiatives, should deliver incremental
improvements to turnover and margins.
Cory Environmental, Exel's UK based waste management business, made significant
strategic progress during the first six months of 2002, securing a 30 year
contract extension for its operations with the Western Riverside Waste
Authority in London. Management will now focus on delivering stronger growth
over the medium term and looking for further strategic opportunities to develop
the business.
Group Performance
On continuing operations, turnover was up 3% at £2,235m (2001: £2,175m) and up
2% on an organic basis (adjusting for movements in exchange rates, acquisitions
and disposals). Operating profit increased by 4% to £107.5m (2001: £102.9m).
Total contract logistics turnover increased by 4% to £1,129m (2001: £1,088m),
also up 4% on an organic basis, reflecting the steady benefit of new contract
wins more than offsetting weaker underlying volumes across several of Exel's
key markets. Overall contract logistics operating profit decreased by 10% on an
absolute basis, or down £5.7m, 11% on an organic basis. Profit performance was
impacted by nearly £4m of incremental non-recoverable insurance costs. Weak
volume trends seen in the second half of 2001 continued to impact Exel's
technology and automotive sectors, particularly in Europe and the Americas. As
a result, despite good performances in the consumer, retail and healthcare
sectors together with good growth in Asia Pacific, half year on half year
margins decreased to 4.3% (2001: 4.9%), although in line with those achieved in
the second half of 2001.
Total freight management turnover was up 2% to £1,056m (2001: £1,036m), up 0.4%
on an organic basis. In airfreight, strong volume growth more than offset
reduced gross margins towards the end of the period. Exel's seafreight revenues
were up 6%, reflecting good volume growth and the impact of the acquisition of
US Consolidation Ltd from March 2002. Due to strong operational efficiencies
and cost management, freight management margins improved to 3.2% (2001: 2.3%).
Operating profit generated by Exel's freight management activities increased by
37% to £33.4m, an increase of 36% on an organic basis.
Environmental turnover decreased by 1% to £50.5m (2001: £51.2m). Operating
profit improved 1% to £8.0m (2001: £7.9m).
A more detailed analysis of performance is included in Appendix A, the Review
of Operations.
Profit Before Tax and Earnings Per Share
Net interest decreased by £5.8m to £7.2m (2001: £13.0m), reflecting the
repayment of high fixed rate US private placement debt in October last year and
lower interest rates on the Group's variable rate debt. Profit before tax,
goodwill and exceptional items was £100.3m (2001: £88.6m) and earnings per
share on the same basis was 22.7p (2001: 19.6p). Basic earnings per share was
19.5p, up 2.5p from 2001. The effective tax rate for the first half of 2002
improved to 30.0% (2001: 31.0%).
Cash Flow
Free cash flow was again strong at £60.9m (2001: £80.1m), despite the higher
net capital expenditure of £44.4m (2001: £26.7m). The continued focus on asset
utilisation and effective working capital management underpinned the sustained
cash flow performance.
Net cash inflow before financing activities was £5.1m (2001: £(72.6)m), after
expenditure of £13.6m on acquisitions (2001: £111.6m) and dividends of £42.2m
(2001: £41.1m). This contributed to net debt decreasing by £11.5m to £208.3m at
the half year (30 June 2001: £296.4m, 31 December 2001: £219.8m). Balance Sheet
gearing at the end of the period was 23.4% (31 December 2001: 25.5%) and
interest cover was strong at 15 times (six months to 30 June 2001: 8 times).
Exceptional Items and Profit Before Tax (FRS3 basis)
Total exceptional items amounted to a net gain of £0.8m (2001: £1.6m charge)
relating to the disposal of properties. After goodwill amortisation and
exceptional items, profit before tax was £89.3m (2001: £77.8m).
Dividend
The Board is declaring an interim dividend of 7.5p per share, an increase of
7.1% over the previous year. The dividend will be paid on 1 October 2002 to
shareholders on the register on 6 September 2002.
Strategic Progress
Exel's strategy, to be the preferred, global supply chain partner to its
customers, has remained unchanged since May 2000. The three foundations of its
development, Exel's customer focus, global coverage and integrated capability,
continue to be the focus of the Group's decision making.
The results of Exel's annual customer survey, conducted by MORI, the
international market research business, acknowledges Exel's progress in
delivering customer focused services but, importantly, also confirms that
Exel's strategy is matching stronger demands for integrated solutions and
services. In the equivalent survey last year 73% of respondents expressed an
increased need for effective integrated supply chain solutions. In this year's
survey, the percentage had increased to 89%, up 16%.
Developing and delivering an integrated capability, as demanded by more and
more of Exel's customers, has been a feature of both investment and the results
throughout the first half of 2002.
The acquisition of Exel's consolidation services business, formerly US
Consolidation Ltd (USCL), based in the US and Asia has already enabled the
Group to develop a significantly stronger seafreight proposition that embraces
a wider range of value added services, from supplier management, consolidation
optimisation, freight brokering, customs clearance to sub assembly operations
and delivery to final destination.
The next generation of Exel's leading visibility tool, Supply Chain Integrator
(SCI), will be launched in the second half of 2002. Engineered in conjunction
with G-Log, a US-based logistics software specialist, SCI2 will incorporate
many additional features demanded by the operation of complex international
supply chains.
The acquisition of USCL also enhances Exel's global coverage, introducing
seafreight operations in the strategically important Shenzhen province of
China, as well as providing ground based infrastructure to service the local
market. In addition the integration of All Cargo Logistics in Austria and
Exel's former agent in Turkey, both acquired at the end of 2001, has
strengthened Exel's non-asset based global freight management network.
Prospects
Exel's resilient business model and its strong global spread and balance of
activities has helped the Group generate solid results during the first six
months of 2002. As expected, the benefit of Exel's strong performance in
delivering new business more than offset weak underlying markets. Overall
margin performance has been maintained with management focusing on operational
improvements and efficiencies to support customers and deliver growth.
Demand for integrated logistics services remains strong and, whilst customers
continue to focus on value for money, the opportunities to create incremental
value in the supply chain remain significant. The combined global reach of
Exel's freight management and contract logistics capabilities continues to
provide the Group with strong competitive advantage. With major customers
continuing to outsource more of their logistics needs, Exel remains well
positioned to benefit from these initiatives and to achieve its medium term
growth objectives.
Notwithstanding the current financial impact of the weaker dollar, the Group
remains confident that, barring any deterioration in global trading conditions,
Exel should achieve market expectations for 2002.
Appendix A – Review of Operations
Europe, Middle East & Africa
Contract logistics
Turnover from contract logistics activities in Europe, Middle East and Africa
(EMEA) increased by 1% to £746m (2001: £739m). Organic growth, adjusting for
the impact of exchange rates, acquisitions and disposals, was 1%. Operating
profit declined 18% to £29.0m (2001: £35.5m), largely reflecting increased
insurance costs of nearly £4m and weaker trading conditions at Exel's
operations in Spain. Together these outweighed good performances by Exel's
retail, healthcare and automotive operations in the UK. As a result headline
margins declined to 3.9% (2001: 4.8%) although margins on its principal
automotive, consumer, retail, healthcare and technology activities remained
steady.
Retail and consumer activities showed steady growth in both turnover and profit
with retail operations in particular benefiting from the start up of new
contracts gained in 2001. At the same time retail operations secured several
major contract renewals, including Safeway and Somerfield. Operations in Europe
were impacted by trading issues at several facilities in Spain. The launch of
the retail sector's international inbound solution set, which combines global
freight management with ground based logistics activities, saw immediate
benefits with the Group securing a new contract with Selfridges that
complements UK based logistics activities already managed by the Group.
Healthcare operations across Europe delivered improved results led by the start
up of contracts with the National Health Service in the UK and higher levels of
activity at several of its specialist multi-user pharmaceutical facilities.
Technology sector operations reflected the impact of volume reductions at many
facilities, particularly in Belgium, Ireland and Spain. However, other
operations, including major facilities in The Netherlands, performed well
despite the weak market conditions. Automotive operations produced a steady
performance with new business, volume gains and better performance at
underperforming operations all making a contribution. Tradeteam performed well
during the first six months of 2002, although margins were slightly down, due
in part to costs related to the opening of a new facility near Glasgow. Major
developments included securing a new £500m multi-year agreement with Interbrew
to manage the brewer's UK distribution activities. The new contract will have a
short term impact on margins whilst the business is ramped up for full
operation during 2004. Exel's Tankfreight activities started to see the
benefits of the management actions taken last year to streamline the business.
Freight management
Turnover from freight management activities increased by 4% to £357m (2001: £
343m) and operating profits improved by 31% to £8.9m (2001: £6.8m). On an
organic basis, turnover grew by 2% and operating profit increased by 29%.
Overall operating margins improved to 2.5% (2001: 2.0%) driven by effective
consolidation and air cargo pricing.
Airfreight volumes across the region improved by 11%, well ahead of underlying
markets. Profit performance in the UK airfreight businesses improved with
several significant consumer customer wins offsetting volume reductions from
many technology customers. Continental European performance benefited from
increased levels of business with several major technology and
telecommunications equipment customers. Despite mixed markets the international
mail and courier businesses performed well.
Americas
Contract logistics
Turnover from contract logistics activities in the Americas was up 6% at £341m
(2001: £322m) and operating profit was broadly unchanged at £17.3m (2001: £
17.4m). On an organic basis, turnover was ahead 7% and profits were unchanged.
Operating margins weakened slightly to 5.1% (2001: 5.4%), mainly reflecting
weaker trading at technology operations.
Consumer activities in the Americas added significant new business and made
good operational progress during the first six months of 2002. Work commenced
on new operations with amongst others, Coors, Johnson & Johnson and Procter &
Gamble. Exel's retail operations continued to show good growth, helped by
incremental revenues from recent wins with Home Depot and Toys "R" Us and
volume increases with several other major customers. The acquisition of US
Consolidation Ltd has already helped consolidate relationships with several
retailers who run significant international logistics operations.
Notwithstanding the year on year impact of lost business during 2001, the
introduction of a new asset-light network distribution operation at Exel Direct
helped improve both revenues and profits. Chemical and industrial activities
generated steady profits on weaker underlying volumes, somewhat offset by
revenues from recent contract wins with Dal-Tile and Tennant. The impact of the
automotive sector's recent contract gains more than offset volume weaknesses at
several facilities. In April, Exel commenced operations at a new facility for
Ford in Brazil as well as opening a new tyre logistics operation for a leading
retailer in Dallas. The benefit of new contract wins and major volume gains at
several key technology customers failed to offset the margin impact of reduced
volumes with a major hardware manufacturer in the US. However, the expanded
footprint of Exel's technology activities in the US continues to strengthen the
business and should prove a solid platform for growth in the medium term.
Freight management
Turnover from freight management activities in the Americas decreased by 5% to
£439m (2001: £462m) but operating profit improved by 1% to £7.1m (2001: £7.0m).
On an organic basis, turnover was down 6% whilst operating profit remained
broadly unchanged. Operating margins improved to 1.6% (2001: 1.5%).
Driven by continued weakness in the technology sector, and an apparent shift in
manufacturing capacity away from the US, underlying international export
volumes decreased further during the first six months of 2002. Against this
backdrop, Exel's airfreight activities in the Americas performed well
reflecting the Group's focus on operational efficiencies and some market share
gains. Overall, export airweight was down 15% on a like for like basis compared
with the prior year, reflecting very weak technology volumes that were somewhat
offset by a stronger domestic performance, partly leveraging the higher import
volumes from Asia Pacific and Europe. Exel's domestic airfreight operations
maintained their strong growth with revenues up over 20%, compared with the
same period in 2001.
Performance at FX Coughlin was in line with expectations established at the
start of the year and, whilst the business remains sensitive to the fortunes of
Ford, its major customer, the initiatives undertaken by management are starting
to deliver benefits. Transportation Services, formerly Mark VII, produced a
steady performance in weak markets, despite low levels of underlying activity.
Asia Pacific
Contract logistics
Turnover from Exel's contract logistics operations in Asia Pacific grew
strongly, up 48% to £41m (2001: £28m) with profit ahead £1.0m to £1.7m (2001: £
0.7m). On an organic basis, turnover and profit were up 48% and 143%
respectively. Operating margins improved to 4.1% (2001: 2.5%).
At the same time as achieving strong growth, Exel invested in strengthening the
logistics management team and secured significant new business opportunities in
the region that will provide further growth in the future. Exel's healthcare
operations in Australia and New Zealand have continued to grow strongly. In
addition Exel benefited from new business with leading retail customer
Carrefour in Korea and technology customers in China, Hong Kong, Malaysia and
Singapore. Further growth is expected as Exel opens new consumer and technology
operations in Vietnam and China during the balance of the year. Recent
successes and the solid operational platform being created in Asia Pacific
reinforce management's expectation that Exel has established a strong platform
for rapid growth in the region.
Freight management
Exel's freight management operations in Asia Pacific delivered strong growth in
the first six months of 2002. Turnover advanced 13% to £259m (2001: £230m) and
operating profit increased by 66% to £17.4m (£10.5m). Operating margins
improved to 6.7% (2001: 4.6%), reflecting one-off benefits related to a
consultancy project in Australia and good improvements in volume which were
partially offset by tighter gross margins towards the end of the period. Exel's
operations continued to drive consolidation efficiencies and maintained its
focus on cost management.
Following very weak volumes in 2001, underlying airfreight markets out of Asia
into Europe and the Americas improved significantly in the first half of 2002
with airfreight volumes up 22%. Against this backdrop, Exel's operations gained
share and maintained high levels of customer service. Operations in Australia,
Hong Kong, India, Japan, Malaysia, New Zealand, Singapore, and Thailand
improved volumes. Overall Asia has been the net beneficiary of changes in
strategic manufacturing amongst many leading multi-national companies, to the
detriment of older economies in the Americas and Europe. Business wins in the
period with Flextronics and Sanmina SCI confirmed Exel's position as the
leading supplier of freight management services to the technology sector. As a
result of Exel's leading position in the region, particularly its strengths in
mainland Asia, the Group is well positioned to benefit further from these
trends.
Environmental
The first half of 2002 saw considerable strategic development at Cory
Environmental, which at the same time made steady trading progress, with
operating profit ahead 1% to £8.0m (2001: £7.9m) on turnover of £51m (2001: £
51m).
In May, Cory signed a contract estimated to generate an income of £700m with
the Western Riverside Waste Authority (WRWA) to manage approximately half a
million tonnes a year of municipal waste. Together with revenues from
additional commercial waste, managed by Cory using the Authority's facilities,
and income from the sale of recyclables, the contract is expected to have a
turnover of more than £1bn over 30 years. The continued use of Cory's River
Thames transport operation will keep over 100,000 heavy goods vehicle movements
off London's roads every year. Cory's innovative solutions for managing waste
include building and operating the largest materials recovery facility of its
kind in the UK, processing an estimated 84,000 tonnes of waste per annum.
In May, Cory signed a major contract renewal for integrated waste management
services with Gloucestershire County Council. Together with significant
specialist services, the new contract includes Cory taking over the operation
and management of recycling centres around the county.
Elsewhere, Cory's municipal services business's results were slightly down on
last year. Landfill operations continue to develop with a new facility at
Greatness in Kent awaiting the grant of an Integrated Pollution Prevention and
Control permit to enable the site to open later this year.
Looking to the medium term, Cory Environmental is now well set to accelerate
its expansion. Management will now focus on developing and enhancing the
operational performance of its existing activities and pursuing further long
term development opportunities.
END
