10 March 2003
Exel reports earnings per share up 14%
Free cash flow up 27% to �177.8m
Future prospects good: new business wins �625m p.a.
Year to 31 December 2002 2001 %
�m �m Change
Turnover - continuing operations 4,688 4,434 5.7
Operating Profit1 - continuing 218.1 210.2 3.8
operations
Profit Before Tax1 - inc. pension credit 205.3 186.6 10.0
Profit Before Tax1 - exc. pension credit 169.3 152.1 11.3
Profit Before Tax 180.6 128.3 40.8
Basic Earnings Per Share1 - inc. pension 47.2p 41.4p 14.0
credit
Basic Earnings Per Share1 - exc. pension 38.6p 33.2p 16.3
credit
Earnings Per Share 39.5p 22.9p 72.5
Dividend Per Share 22.8p 21.3p 7.0
1 before goodwill and exceptional items
Highlights
* Good turnover and profit growth in challenging underlying markets
* Strong free cash flow generation, up 27% at �177.8m (2001: �140.3m)
* Resilient margins, particularly UK contract logistics and freight
management
* Dividend increased by 7%
* Net �350m annualised revenues from new business wins and reduced losses
* Renewal rate on existing business over 75%
John Allan, Chief Executive of Exel, commented:
"Exel's performance in 2002 demonstrates that the Group can deliver solid
growth in weak economic conditions and at the same time win new business to
deliver future increases in profit. The continued focus on cost management and
cash generation has yielded further benefits with free cash flow in particular
being strong. Overall our margins have also remained firm.
"Since the merger that created today's Exel, the Group has demonstrated the
strength of its business model and strategy in difficult markets. We expect
2003 to be another challenging year with more than the usual geopolitical,
economic and currency uncertainty. At this early stage, Exel has made a sound
start to 2003 with trading in line with our expectations and the Group's new
business pipeline is strong. Provided there is no material worsening of world
economic conditions, we believe Exel is well positioned to make good progress
in 2003."
For further information please contact:
Exel plc
John Allan, Chief Executive
John Coghlan, Deputy CEO and Group Finance Director
John Dawson, Director of Corporate Affairs
On 10 March: +44 20 7678 0152
Generally: +44 1344 744409
The Maitland Consultancy
Martin Leeburn / Lydia Pretzlik
+44 20 7379 5151
Presentation of Results
The presentation of results will be held at 9:15am at ABN Amro, 250
Bishopsgate, London.
Conference call for Analysts, Institutions and other Interested Parties
John Coghlan and John Dawson will be hosting a conference call from 2:00pm UK
time for further questions concerning the results. The contact number for the
call is +44 20 8996 3900. The verbal access code is C397558. Once prepared, a
transcription of the call will be posted to www.exel.com.
Exel delivered a good performance in 2002 despite weak economic conditions. The
Group benefited from the strong progress in winning new business which provided
a platform for turnover growth in both contract logistics and freight
management. Overall profit growth was held back by the poor performance at
several Continental European operations and the slowdown in technology markets,
particularly in the Americas. Cory Environmental, Exel's waste management
business, showed steady growth in both turnover and profits.
The Group made further progress in implementing its strategy which has
continued to deliver competitive advantage in Exel's different industry sectors
and geographic markets. During the year, Exel secured strong new business wins
of �625m and renewed over 75% of contracts reviewed during the year. As a
result, the Group secured an additional �350m of net annualised revenues. Exel
also delivered the first demonstrable benefits of the `creating new value'
initiative, launched at the end of 2001, by securing three major customer
contracts in the US and UK. Three acquisitions added to contract logistics and
freight management capabilities in Asia, Africa and North America.
Group Performance
Turnover from continuing operations was up 5.7% at �4,688m (2001: �4,434m), up
4.6% on an organic basis (adjusting for movements in exchange rates,
acquisitions and disposals). Operating profit increased by 3.8% to �218.1m
(2001: �210.2m). Organic growth in operating profit was 2.2%.
Total contract logistics turnover increased by 5.6% to �2,358m, up 5.7% on an
organic basis. Overall, contract logistics operating profit decreased by 5.9%
on an actual basis and by 6.3% on an organic basis. Margins were 4.1% (2001:
4.6%), mainly reflecting increased insurance costs in Europe of �6m,
disappointing performances in France and Spain and weakness in the US
technology and automotive markets. Notwithstanding the higher insurance costs,
margins in UK & Ireland improved to 4.9% (2001: 4.8%).
Total freight management turnover increased by 6.0% to �2,225m (2001: �2,099m).
Overall, freight management operating profit increased by 20.4% to �69.0m.
Organic growth in turnover was 3.6% and in profits was 15.8%. Margins improved
to 3.1% (2001: 2.7%). A strong performance in Europe more than offset flat
margins in the Americas, where greater efficiencies balanced continued weak
demand, and the impact of second half margin reductions in Asia Pacific, where
the Group grew revenues strongly in competitive markets.
Environmental turnover increased by 1% to �104m (2001: �103m). Operating profit
increased by 5.4% to �15.5m (2001: �14.7m). The business secured a 30 year
extension of the contract with the Western Riverside Waste Authority, which was
expanded to include significant recycling and other services. In September,
Cory purchased the landfill assets of the Lyme and Wood Pits Colliery near St.
Helens.
A more detailed performance review is included in Appendix A - Review of
Operations.
Profit Before Tax and Earnings Per Share
Net interest decreased to �12.8m (2001: �21.1m), mainly reflecting reductions
in the average net debt, led in part by improved working capital management,
and the full year impact of the repayment of high fixed rate US Private
placement debt completed in October 2001. The Group also benefited from lower
interest rates on the variable rate debt and forward foreign currency hedging
contracts. Profit before tax, goodwill and exceptional items was up 10% to �
205.3m (2001: �186.6m) and earnings per share on the same basis was up 14% to
47.2p (2001: 41.4p). Excluding the pension credit, profit before tax was up 11%
to �169.3m (2001: �152.1m) and earnings per share on the same basis was up 16%
to 38.6p (2001: 33.2p). Basic earnings per share was 39.5p, up 16.6p or 72%.
The effective tax rate for 2002 improved to 29.0% (2001: 30.5%), a rate that
the Group expects to be able to maintain, barring major changes in global
corporate taxation.
Exceptional Items and Profit Before Tax (FRS3 basis)
Total exceptional items amounted to a net profit of �0.9m (2001: �38.0m charge)
arising on the disposal of fixed assets. After the pension credit, goodwill
amortisation and exceptional items, profit before tax was �180.6m (2001: �
128.3m).
Cash Flow
Free cash flow was strong at �177.8m (2001: �140.3m), reflecting the impact of
the group-wide introduction of Exel's business operating asset charge which
charges managers with the costs of capital tied up in their operations. This
led to an increased focus on working capital that has yielded significant
benefits during 2002. As a result net cash inflow from operating activities was
�61.9m higher than 2001. Together with reduced cash outflow for interest and
other financial charges of �19.1m (2001: �32.1m), this more than offset
increased investment in capital expenditure of �136.5m (2001: �123.6m) and a
reduced income from the sale of tangible fixed assets of �30.1m (2001: �52.3m).
Net cash inflow before financing activities was �41.9m (2001: outflow of �
25.5m), after expenditure of �71.4m on acquisitions (2001: �116.7m). This
contributed to net debt decreasing by �66.1m to �153.7m at the year end (2001:
�219.8m). Balance sheet gearing at the end of the year was 17.1% (2001: 25.5%)
and interest cover improved to 17 times (2001: 10 times).
Dividend
The Board is recommending a final dividend of 15.3p per share, making a total
of 22.8p, an increase of 7.0% over the previous year. The dividend, if
approved, will be paid on 14 May 2003 to shareholders on the register on 22
April 2003.
Pensions
In Exel's 2002 financial statements pensions have been accounted for on the
basis of SSAP 24. The net pensions credit, for all the Group's defined benefit
schemes both in the UK and overseas, amounted to �36.5m. The Group has
announced that it intends to implement fully FRS 17 from 2003 and onwards.
Accordingly, the Group has included in these financial statements a pro forma
profit & loss account for 2002 based upon FRS 17. The overall impact in 2002,
had the Group prepared its financial statements on the basis of FRS 17, would
have been a reduction in profit before tax of �9.5m.
In future years, the impact of FRS 17 on the Group's profit & loss account will
depend upon external market factors at the previous year end date, particularly
bond yields, asset market values and the expected return on assets. As such,
the FRS 17 pensions charge to the profit & loss account will vary more than in
previous years. In particular, following the fall in worldwide equity values
during 2002, the FRS 17 results for 2003 will be lower than for 2002. As an
indication, the Group expects the overall year-on-year impact on profit before
tax to be c.�34m lower than the FRS 17 restated results for 2002.
The full FRS 17 disclosures will be included in a note to the Group's financial
statements. The valuation of the Group's defined benefit schemes as at 31
December 2002 on an FRS 17 basis showed an aggregate surplus of �59m (2001: �
491m). The reduction from the previous year end was primarily due to the
substantial decline in equity markets through 2002.
The next triennial valuation of Exel's principal UK pension schemes is due as
at 31 March 2003. This will determine the extent to which Exel can continue its
current cash contribution holiday. Last November, Exel announced that, based
upon roll forward projections of the forthcoming funding valuations, Exel
expected to continue a contribution holiday for both schemes for a further five
years. Since these projections, equity markets have continued to be volatile
and values have significantly declined - currently equities are 12% lower than
at the date of our provisional projections. In this volatile and uncertain
environment, with much lower equity values, Exel may need to recommence some
level of cash contribution for one of its UK schemes (the old Exel scheme)
before the next triennial valuation in 2006. This will not be determined until
the actuarial valuations have been completed in the second half of this year.
At current market levels, it is unlikely that the cash contribution holiday for
the old Ocean scheme will be impacted for the next three years.
Management
During the year several changes took place at Board level. Nigel Rich,
previously Deputy Chairman and the senior non-Executive Director, was appointed
Chairman in October following the resignation of John Devaney who retired to
pursue other business interests. Subsequently Sir William Wells was appointed
senior independent non-executive Director in addition to his responsibilities
as Chairman of the Remuneration Committee.
In addition to the Board changes, we made several changes to the
responsibilities of our senior management team to help develop their broader
skills and strengthen our customer focus. Ian Smith assumed the role of Chief
Executive, Consumer, Retail and Healthcare - Europe. Graham Fish replaced him
as Group Commercial Director, retaining responsibility for Exel's Tradeteam
subsidiary. Bruce Edwards, Chief Executive of our Consumer, Retail and
Healthcare business in the Americas assumed Board level responsibility for
Exel's global automotive business. From within Ian's team, Stewart Oades, Chief
Executive, Retail Worldwide and Consumer Europe, joined Exel's Executive Board.
Strategic Progress
At the end of 2001 we launched our `creating new value in the supply chain'
initiative. Focused on challenging conventional thinking in the logistics
industry, the objective has been to develop customer-focused propositions that
will be the foundation of stronger business partnerships, unlocking greater
value for both the customer and Exel's shareholders. The speed at which this
initiative has been adopted by the business and the progress made with initial
target customers has been encouraging. New contracts have already been secured
with three major businesses in the US and the UK and the pipeline of further
opportunities remains strong.
Creating new value for our customers is about understanding the drivers of
economic value for them and designing and implementing supply chain strategies
that focus on these levers. Our sector and global account management teams are
ideally aligned to deliver this service. Their solutions are supported by the
integrated logistics skills and systems development expertise of the entire
Exel network.
Having completed a successful initial programme during 2002, the Group is set
to roll out the development of this initiative throughout Exel. This will
enable our management to find ways of unlocking more value for our customers
and at the same time maintaining the momentum the Group has established in
finding profitable growth opportunities.
We have also taken steps to strengthen the main cornerstones of Exel's
strategy. The three acquisitions announced in 2002 have already had a positive
effect on our global coverage, integrated capability and customer focus. At the
start of 2002, Exel acquired US Consolidation Limited, based in the US and
Asia. This is now a core part of Exel's seafreight consolidation services
offering and has proved a very valuable acquisition from which many of Exel's
customers will benefit over time. In September we completed the acquisition of
Power Logistics. Integration of the US operations started in October and is
proceeding very well. Finally, in November we announced the acquisition of
Eagle Freight, a South African company with operations in seafreight,
airfreight and ground based logistics. The acquisition was completed in early
2003.
Prospects
Exel's performance in 2002 demonstrates that the Group can deliver solid growth
in weak economic conditions and at the same time win new business, totalling �
625m in 2002, to deliver future increases in profit. The continued focus on
cost management and cash generation has yielded further benefits with free cash
flow in particular being strong. Overall our margins have also remained firm.
Customers continue to expect greater returns from their supply chains. Our `
creating new value'initiative has started to find ways of unlocking these
opportunities for our customers. We believe this will continue to be an
important competitive advantage in the future as customers continue to
outsource their logistics needs.
Since the merger that created today's Exel, the Group has demonstrated the
strength of its business model and strategy in difficult markets. We expect
2003 to be another challenging year with more than the usual geopolitical,
economic and currency uncertainty. At this early stage, Exel has made a sound
start to 2003 with trading in line with our expectations and the Group's new
business pipeline is strong. Provided there is no material worsening of world
economic conditions, we believe Exel is well positioned to make good progress
in 2003.
Appendix A - Review of Operations
Europe, Middle East & Africa
Contract Logistics
Turnover from contract logistics activities in Europe, Middle East and Africa
increased by 3.7% to �1,562m (2001: �1,507m). Adjusting for the impact of
exchange rates, acquisitions and disposals, organic growth was 3.3%, with
improved growth in the second half led by a strong performance in UK & Ireland
contract logistics. Operating profit declined 6.5% to �60.1m (2001: �64.3m)
with margins declining to 3.8% (2001: 4.3%). Overall performance reflected the
drop in Continental European profits, led by weak performances in Spain and
France, and increased insurance premiums of around �6m, principally in the UK.
Nevertheless, Exel's margin at its UK & Ireland operations improved to 4.9%
(2001: 4.8%).
Retail markets remained positive for Exel. The Group strengthened its
activities with new international logistics operations for two leading fashion
retailers and major contract renewals with Safeway and Somerfield. Operating
issues at facilities in France and Spain sharply reduced profits in the two
countries. Consumer business remained steady, with Exel's shared use activities
maintaining a high level of utilisation in a competitive market. New business
wins were secured with Burtons Foods and Heinz, amongst others. Healthcare
performed steadily with new facilities opened for the NHS in the UK and
expanded operations for several customers on the continent. Automotive
operations in the UK performed strongly with a major turnaround at Exel's
Automotive Management Services business being amongst the highlights. Overall,
improvements were partially held back by weaknesses in Spain, Germany and
Sweden, where new business with Saab was still in its early stages and
production volumes were lower than expected. Technology profits increased
overall, led by strong performances in Belgium, France and The Netherlands and
improvements in the UK. These more than offset the weakness in Spain, caused
principally by the insolvency of a leading digital TV business. Exel's
Tradeteam operation secured a major outsourcing deal with Interbrew UK. Worth
around �500m over the next eight years, the contract gives Tradeteam
responsibility for the UK distribution of the brewer's leading brands,
including Whitbread, Stella Artois and Becks. Overall Tradeteam delivered a
mixed performance, showing good revenue growth although margins were down
reflecting the impact of pricing decreases, some increased operating costs and
charges related to the start up of a new facility outside Glasgow. Tankfreight
operations in the UK performed soundly, showing a good improvement over 2001.
Freight Management
Turnover from freight management activities increased to �696m (2001: �691m)
and operating profits improved by 52.5% to �18.3m (2001: �12.0m). On an organic
basis, turnover fell by 2.0%, however operating profit increased by 45.9%. A
strong second half performance saw profits increase by 81%. Margins improved to
2.6% (2001: 1.7%), reflecting an improved mix of activities, the introduction
of Exel's freight gateway strategy and some consequential improvements in
purchasing airfreight capacity. Airweight increased by 12%.
Germany, The Netherlands and the UK, in particular, all improved performance
with new business gains, volume growth and purchasing efficiencies.
Disappointments included operations in Belgium, France and East Africa where
local operating issues are being addressed. West African operations performed
strongly. The 2001 acquisitions in Austria and Turkey both made positive
contributions. In November 2002, Exel announced the acquisition of Eagle
Freight, a South African company with seafreight, airfreight and contract
logistics operations. Integration has started, although the business had no
impact on 2002 results. The acquisition strengthens Exel's capabilities in
Southern Africa and will help accelerate growth in the region. Exel's
international mail and courier businesses performed well in difficult markets
for premium distribution services.
Americas
Contract Logistics
Turnover from contract logistics activities in the Americas was up 7.5% at �
707m (2001: �658m) with operating profit down to �34.8m (2001: �37.1m). On an
organic basis, turnover was ahead 8.9% and profit down by 6.2%. Margin was 4.9%
(2001: 5.6%), reflecting a solid performance from consumer, retail and
healthcare operations across the region, which was more than offset by weaker
second half trading at several technology customers and volume issues during
the start-up of a major automotive facility in Brazil towards the end of the
year. However, prospects for 2003 are strong following a programme of new start
ups. During the last eight months, 15 new facilities were commissioned for
customers around the US, mainly leveraging Exel's existing campus
infrastructure.
Consumer and retail activities showed good growth, with the business securing
several major new contracts, including new business with Coors Brewing Company
and The Home Depot. The acquisition of Power Logistics in October strengthens
Exel's client base and brings expertise in secondary packaging - bundling
customer products together for retail sales initiatives. The integration of
Power's US operations is already underway. Exel Direct demonstrated further
progress in improving its performance. Healthcare operations made good progress
with new business and contract extensions from Bayer and Johnson & Johnson.
Exel's automotive business in the US continues to develop well. Whilst
operating performance has been held back by issues in Brazil, business
development has been good. Most notably, Goodyear Tire and Rubber Co appointed
Exel as lead logistics manager. In this role, Exel will use its strategic
planning and integration skills to engineer innovative solutions to improve
supply chain performance. A similar role is being undertaken in the consumer
sector with The Scotts Company, a leading manufacturer of garden care products.
Technology customers experienced weak demand throughout 2002, leading to
reductions in the level of supply chain activity. Whilst Exel has continued to
develop its business, which should be positive for the future, operating
margins during 2002 were weaker. Growth in Exel's industrial sector has been
good, with Crompton Corporation, Dal-Tile and International Paper all expanding
the scope of existing contracts to include additional services and locations.
Exel's operations in the chemical sector also made good progress, despite weak
demand.
Freight Management
Turnover from freight management activities in the Americas decreased by 1.9%
to �904m (2001: �922m) and operating profit declined by 4.8% to �17.7m (2001: �
18.6m). On an organic basis, turnover was broadly unchanged and operating
profit declined by 14.2%. Operating margins were unchanged at 2.0% (2001:
2.0%).
Export airweight was down 8% on a like-for-like basis, compared with the prior
year. International operations performed well, benefiting from new business
gains as well as increased import activities from Asia. Major new wins included
Intel and International Rectifier. Capacity in the export market remains high
and pricing has therefore remained soft. FX Coughlin delivered year-on-year
improvements, partly due to more stable volumes. New business gains included
additional work with Jaguar for its X350 range. The acquisition of US
Consolidation Limited at the start of the year also had a positive impact on
performance and significantly strengthened Exel's relationships with a number
of key retailers. The development of the consolidation and seafreight
activities within Exel's global network will be greatly accelerated by this
acquisition. Ground-based freight management, led by Exel's transportation
services activities, encountered weak volumes throughout the year but
maintained steady margins. Exel's domestic airfreight operations maintained
good volume growth, although operating profit was reduced by lower operating
margins and one-off issues with activities in Mexico from which the Group has
now withdrawn.
Asia Pacific
Contract Logistics
Turnover from Exel's contract logistics operations in Asia Pacific, fuelled by
strong organic growth, increased 32% to �89m (2001: �68m) with operating profit
increasing by 17% to �2.7m (2001: �2.3m). Operating margins declined to 3.0%
(2001: 3.4%), reflecting the investment made in strengthening the supply chain
solutions team. This investment will help ensure that Exel maintains its rate
of progress in developing logistics activities in the region.
During the year, the business secured major wins with Amcor in Australia,
Carrefour in Korea and Procter & Gamble in the Philippines. We also opened
several new facilities, including a major new logistics park at XingWang, near
Beijing. The operation, a new start-up for a significant telecommunications
customer, includes implementing an innovative electronic customs free-zone,
designed with the approval of the Chinese authorities. New business
opportunities remain strong and, with the recent successes and strengthened
management capability, Exel is well placed to continue the successful
development of its contract logistics activities in Asia Pacific.
Freight Management
Turnover from freight management activities in Asia Pacific increased by 29% to
�626m (2001: �486m). Operating profit increased by 23.6% to �33.0m (2001: �
26.7m). On an organic basis turnover was up 20.2% and operating profit
increased by 22.0%. Margins were 5.3% (2001: 5.5%), reflecting the
consolidation of Exel's share of its joint venture revenues in China (2002: �
40.8m) for the first time, only the profits from which had been previously
included. Stronger operating margins in the first six months were balanced by
lower margins during the second half as the business saw capacity restrictions
emerge on key routes.
At over 20%, Exel's airweight growth was well above that achieved by the
regional market as a whole. Asia Pacific now represents around 50% of Exel's
international airfreight by weight. Underlying Exel's strong performance has
been growth in demand from technology, consumer and retail customers. In
addition, the business has secured regional freight management contracts for a
European automotive company and a contract with Halliburton to provide
logistics for its global projects operations. Looking regionally, particularly
strong performances were achieved by Exel's operations in India, Japan and
Malaysia. Exel's two largest operations, in Singapore and Hong Kong, maintained
last year's record performances. This was a challenging year, with increased
pricing pressure from customers and selected capacity limitations affecting the
cost of airfreight impacting margins. Notwithstanding that, only Taiwan fell
behind last year's performance. US Consolidation Limited has now been fully
integrated as a key part of our fast growing consolidation services solution.
The acquisition has performed well, exceeding expectations during the first 10
months of ownership. The service has become an important part of a number of
Exel's major contract gains during the year and the Group expects to be able to
secure similar opportunities in the future.
Environmental
Cory Environmental made significant strategic progress during 2002, delivering
growth whilst at the same time finalising its new enlarged contract with the
Western Riverside Waste Authority in London and expanding its operations in the
North West of England with the acquisition of the landfill assets of the Lyme
and Wood Pits Colliery. Operating profit increased 5.4% to �15.5m (2001: �
14.7m) on turnover up 1% to �104m (2001: �103m). Operating margins improved to
14.9% (2001: 14.3%).
In May, Cory signed a contract with the Western Riverside Waste Authority to
manage approximately half a million tonnes a year of municipal waste, estimated
to generate an income of �700m over 30 years. 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 its full life. 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 a materials recovery facility
which will be one of the largest of its kind in the UK.
In May, Cory signed a major contract renewal with Gloucestershire County
Council for integrated waste management services. Together with significant
specialist services, the new contract includes Cory taking over the operation
and management of recycling centres around the county.
In September, Cory acquired the landfill assets of the Lyme and Wood Pits
Colliery in St Helens, Merseyside, for �2m. The site, which will accept waste
from the second quarter of 2003, will generate turnover of approximately �50m
over six years. With other recent planning consents, including the extension to
the site at Mucking in Essex, and the approval of the Greatness site in Kent,
Cory has added over eight million cubic metres of consented landfill capacity.
Cory's municipal services business performed in line with last year.
Cory Environmental is now well set to consolidate its recent gains. Management
is focusing on developing and enhancing the operating performance of its
existing activities and pursuing further development opportunities.
END