FedEx contract loss means Business Post shares struggle

Business Post shares suffered yesterday when US logistics giant FedEx confirmed it was scrapping a major contract with the company, which has a hub in Birmingham.

The move follows FedEx’s pounds 120 million acquisition of ANC Holdings, a major rival to Business Post in the UK.

Business Post’s shares retreated 32 1/4 ViTp to 429 3/4 p in early trading but later recovered some lost ground to close 17 1/4 p down at 444 1/2 p, a loss of 3.7 per cent. FedEx said it intended to terminate Business Post’s contract as “Global Service Participant” in the UK, a contract that accounts for about six per cent of the company’s turnover.

Given the operational gearing of the contract, the impact on earnings is likely to be slightly higher, City analysts believe.

Broker Altium has, however, maintained its earnings estimate for the time being.

But it has cut its long-term target price for the stock from 450p to 425p, while Teather & Greenwood downgraded shares from “buy” to “sell”.

Business Post said in a Stock Exchange statement that it expected the FedEx contract, which only came into effect in September this year, to end in September 2007.

“We do not expect any impact on profits for this financial year,” the company said.

“Once the nature and timing of the contract exit has been agreed, we will give guidance on the profit impact for future years.”

Memphis-based FedEx, the world’s biggest logistics company, said its acquisition of ANC would enable it to directly serve the entire UK domestic parcels market.

ANC, which underwent a pounds 37.3 million management buy-out in February, operates from 80 locations, including two national hubs at Newcastle-under-Lyme in Staffordshire and Milton Keynes, as well as depots at Tyseley, Birmingham, and Brownhills, Walsall.

It employs about 4,500 people and operates a fleet of 2,200 vehicles.

It claims 11 per cent of the UK internal domestic express parcels market and has a turnover of about pounds 133 million a year.

Explaining the logic of the deal, FedEx said UK businesses increasingly demand “bundled transportation offerings” in order to take advantage of global economic trends.

These include growing shipments of high-tech, high-value manufactured goods, the need for faster supply chains and logistics plus the growth of the internet and e-commerce.

“As the UK market continues to evolve and expand, customers increasingly seek a single provider of solutions for their domestic and international shipping to more efficiently manage their global supply chains,” said Robert W Ellitt, president of FedEx in Europe, the Middle East, Africa and India.

“This acquisition gives our customers access to broader business and transportation services and supports the delivery of an outstanding customer experience each and every day.”

The takeover of ANC will see the exit from the company of Lloyds TSB Development Capital which backed this year’s MBO.