UK parcels and postal group Business Post today announced a major drop in profits for 2005-06but claimed it is well on the road to recovery after a management shake-up and strategic review
over the last few months.Business Post revenues grew by 19% to £278.2 million in the year ending March 31, 2006. Butoperating profit before exceptional items dropped to £11.7 million from £19.6 million last year andoperating profit fell to £5.4 million. Business Post ended the year with a net profit of £3.7million compared to £13.7 million in 2004-05.
The main reasons were a heavy drop in profits in the core parcels business and exceptional costsof £6.7 million relating to the franchise network, management changes and restructuring.
Business Post’s core parcels business, which generates about 70% of turnover, increased revenueby 5% to £195.8 million in 2005-06 but pre-exceptional operating profits declined by 43% to £17.4million and overall operating profit fell to £11.1 million. The B2B service “Express” suffered aslight revenue decline to £130.8 million, the B2C service “HomeServe” increased revenue by 22% to£32.8 million, while International revenues grew by 12% to £31.6 million.
After a strong start to the year, with daily volumes well ahead of the previous year, parcelsgrowth progressively deteriorated, to the point where in the final quarter they were below those ofthe previous year, Business Post said. Both the progressive decline in revenue growth during theyear and the markedly lower profitability can be attributed in large part to the impact of a numberof unsuccessful profit improvement initiatives introduced during the year. These includedshort-term cost reduction initiatives which adversely impacted service levels. These serviceissues, and a series of price increases in the summer, in turn affected customer numbers,particularly SMEs, with the result that the average selling price declined and operationalefficiency reduced. Furthermore, additional costs have been incurred in supporting a number ofunder-performing franchises.
Chairman Peter Kane admitted that the parcels business had faced “a challenging year” butstressed that the performance improvement plan with higher customer service levels was beingrigorously implemented under new CEO Guy Buswell. Key measures include sales initiatives for smallbusinesses, linehaul cost reductions and the acquisition of various poorly-performing franchiselocations to ensure network performance.
“Encouraging early progress has been made, with service levels remaining high and the number ofcustomers now on an upward trend. It will take time for the full benefit of our actions to showthrough but, with trading since the year end having been satisfactory, we expect underlyingprogress to be made in the coming year, albeit weighted to the second half,” Kane said. The renewalof the FedEx contact for the UK was also an important development.
The letters business, UK Mail, increased revenue four-fold to £40.4 million and made anoperating profit of £3.2 million. It now has annualised throughput of some 700 million items,representing a 3% market share. The Specialist Services, covering UK Pallets and the Courierbusiness, increased revenue by 18% to £41.6 million and improved their operating profit to £2.1million.
Looking ahead, Business Post said its parcels business model remained sound with significantscope for recovery. The opportunities for UK Mail remained particularly exciting and it couldmaintain its position as the leading competitor to the Royal Mail for the foreseeable future.Trading since the year end had been satisfactory, service levels remained high and customer numberswere now rising again.
