Aiming to deliver a first-class future

The day Paul Carvell walked into his office as chief executive of Business Post he was well aware that the parcel delivery company was sound, but had lost its way.

'The City had lost faith in the business and there were management issues,' said Paul. 'When I was headhunted the share price was about 165p.'

Last night the share price was 387p good progress after 22 months in the job. 'I have grown up in this sector and chief executive posts are few and far between because of consolidation. The transport and services sector is slimmer than it used to be,' he said.

But Paul will not take his foot off the pedal despite the rising share price.

'The company clearly needs to do better. I will not be following the old saying of 'if you do not have a strategy then any road will take you there.' 'Business Post had been a very entrepreneurial reactive kind of operation but there was no long-term planning. There was no strategy that anyone could read, understand or relate to. Everything was done in short-term bursts.

'Without being overcritical people had not sat down and asked where the company should be in three or four years time and how much investment would it require and what were the strengths and weaknesses of the marketplace?'

One of the first things Paul did was to write up a three-year plan. It was explained to the board of directors who gave their support and in November 2001 it was introduced to the shareholders and investors who were 'delighted'.

The company ended up with a plan, a time scale and a figure for investments and the energy was there to get the share price turned around from a Hold to a Buy.

Paul made about 50 or 60 presentations to investors and they told him it was what they wanted to hear with the instruction 'get out there and do it'.

Each quarter Business Post had done a little better than had been anticipated and the three-year plan came into operation last April at the beginning of the company's financial year.

'When somebody new comes in they can see areas where improvements can be made and my first year was about tactical improvements. We spent a lot of money in certain areas,' said Paul.

'But the thing that came through to me was that the more I looked at the business we were well-placed to do something special.

'A lot of our competitors are owned by venture capitalists who do not like investment, they only like cash. They do not want to invest in new services but we could push forward with our own new services.'

While all the planning was underway a very nice slab of icing landed on the Business Post cake – a deal with international parcels deliverer FedEx, the world's largest express delivery player. FedEx chose Business Post to undertake all its collections and deliveries in the UK in the areas it did not cover itself. Business Post is now responsible for 55 per cent of FedEx collections and deliveries, which are fed into its air network.

That contract accounted for about ten per cent or pounds 12 million of Business Post's turnover of nearly pounds 124 million in 2001. But Business Post faces financial penalties if 'certain things' are not delivered.

Companies have their star employees and often it is the chief executive, if he is the pro-active type, who has the job of finding them.

But at Business Post a lot of employees who had seen Paul's changes coming 'were up for it', said Paul and willing to take on additional responsibilities. Some were honest enough to say it was beyond their abilities.

Some new, energetic talent was brought in but there was 'no wholesale cull' of existing employees.

'Despite all the issues of the past, the commitment and energy inside Business Post is phenomenal. There is some fun around the place and Business Post is a good place to work.'

But what will the situation be at the end of three years? There appears to be plenty of confidence flowing into the roll-on period.

Paul expects Business Post to be a FTSE 250 company and it is already on the reserve list. In three years the turnover is expected to be pounds 300 million with 5,000 employees against the 3,500 at present.

'Because we are a plc we have to remind ourselves the shareholders pay our wages and they deserve a good return for their support.

'We want to get the share price up to the levels of former glory days. I think pounds 6 to pounds 8 would be realistic. If we can deliver the three-year plan then we should be looking well above pounds 6,' said Paul. 'There is already a demand for our shares and a waiting list to buy them.'

Running the company more in tune with its size was a factor Paul looked at when he arrived as chief executive.

The company had big-firm advisers and brokers and as a smaller company on their lists Business Post was not getting the attention to detail that it wanted.

New financial advisers have been appointed, a different financial PRcompany dealing with smaller-mid capitalisation businesses and Old Mutual Securities is now the broker.

Old Mutual gives the company a buy rating after strong November interims but despite the FedEx contract benefits and developments of the emerging business, the franchised network investment and new business development had led to slower profit growth.

A share option and share saving scheme has been introduced which Paul sees as promoting enthusiasm to push up the share price.

The debate about mail reorganisation is being followed closely by Business Post, which has moved parcels and some mail but the restrictions has been pounds 1 in price or 350gms in weight.

Two recent changes brought in by the Government have been the setting up of PostCom – the regulatory body – and PostCom's power to introduce competition and license Royal Mail carriers.

'We discovered what we had to do by looking at different operations around the world and we settled on workshare, which is a business model to bring out the best in us and the best of the Royal Mail,' said Paul.

'We collect in bulk, sort the mail and move it around the country efficiently and put it into the local office of the Royal Mail for the postmen and postwomen to do the last mile delivery.

'That is our business class delivery, approved by PostCom. It is two days delivery, if it is collected on Monday it will be delivered on Wednesday.

'We went into bat with the Royal Mail one year ago. We talked to them about delivering our mail on our behalf and Royal Mail said it was on condition we got it into their Post Offices.

'Sadly, after 26 meetings we did not move on deliveries. We had been stonewalled and were getting nowhere.'

In April 2002 Business Post went to the regulator and told him it could not reach agreement on a price. Part of PostCom's remit is to determine prices.

The situation now looks like being resolved.

A confidentiality agreement prevents either side from talking about the contents of the agreement but Paul said there was 'good and bad' in it.

Business Post already sees it as an agreement with the Royal Mail that contributes to keeping the 88,000 jobs of postmen and postwomen safe.

'We shall move things quickly and efficiently and at less price per unit cost,' said Paul. 'It remains British and is better than letting the French, Dutch or Germans come in.'

The prize in the domestic UK mail market, though, is big and the market size is worth pounds 5.3 billion per annum.

If Business Post can get a two or three per cent market share of that stamp licking and franking it will put pounds 150 million on the bottom line.

The first target is to get the company into the big bulk mail business with business coming from utilities, credit card companies and organisations which send out pre-sorted high volumes of mail.

The regulator will release various sectors as competition is introduced over the next six years. To release everything at once would be chaotic.

Business Post is running UK Today, a same day delivery service using vans, coaches, airplanes and motorcycles. About 2,000 customers use the service on a regular basis. UK Today is part of Business Post's new services, which have been well supported by the customer base.

This is part of the company's strategy to seek out higher value and time sensitive deliveries as a premium carrier while keeping costs down at the same time.

A temporary block was been put on new customers until this month.

'We are looking after our existing customers and if you do not look after them at Christmas they change in January. We have 20,000 signed-up express parcels customers and we are picking up from about 3,000 FedEx customers each day,' said Paul.

Business Post, which is cash generative, has no gearing of any substance but Paul is now putting the company into an acquisition mode for small specialised delivery firms. This will put some borrowing on the book.

Sliding a list of the leading companies across the table, Paul pointed out that Business Post was the only British company in the top five players in the domestic UK market.

The companies above Business Post 'are cheap and rely on volume' but the company is standing its ground as a premium carrier.

'Getting year-on-year price increases is tough,' said Paul. 'In the three-year plan we have not factored in any help from the economy or growth in the economy just acknowleding there will be pressures on prices.

'We are big users of petrol and diesel oil and we also assumed the labour market will be tough, particularly the recruitment of drivers.'

The closing share price was down 0.5p at 387p.