28 July 2003
Exel reports turnover growth of 7%
Underlying earnings up 7%
Annualised new business wins over �400m
At constant At actual
exchange rates
exchange rates
Six months to 30 June 2003 20022 % 20022 % change
�m �m Change �m
Turnover - continuing operations 2,391 2,167 10.3 2,231 7.2
Operating Profit1 - continuing 71.7 70.5 1.7 73.0 (1.8)
operations
Interest (4.7) (6.8) - (7.2) -
Profit Before Tax1 67.0 63.4 5.7 65.5 2.3
Basic Earnings Per Share1 15.4p 13.9p 10.8 14.4p 6.9
Dividend Per Share 7.9p 7.5p 5.3 7.5p 5.3
1 before goodwill, exceptional items and FRS17 finance income
2 2002 restated to include impact of the FRS17 Retirement Benefits standard
Highlights
* Operating performance steady in tough market conditions
* Strong growth in contract logistics - profit up 28% with improved margins
* Freight management held back by weaker performance in Americas and Europe
* Asia Pacific delivered solid growth in challenging economic conditions
* Full year free cash flow expectations remain strong after good first half
* Further progress in reducing debtor days and improving average working
capital
* Dividend increased by 5.3%
John Allan, Chief Executive of Exel, commented:
"Despite tough market conditions Exel has made considerable progress
successfully implementing new contracts and improving operating performance at
several businesses. There is still some work to be done in European contract
logistics and domestic US freight management, but performance to date confirms
the Group's confidence for the balance of 2003.
"Progress with new contract gains remains ahead of the same period last year
and the Group enjoys a healthy pipeline of new business opportunities. The
Group continues to expect another year of solid trading progress and is well
positioned to deliver good growth in the medium-term."
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 28 July: +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 9:00am, 28 July at ABN Amro, 250
Bishopsgate, London.
Conference call for Analysts, Institutions and other Interested Parties
John Allan and John Dawson will be hosting an operator assisted conference call
from 2:30pm UK time, 28 July, for further questions concerning the results. The
contact number for the call is +44 20 8974 7900 and the access code is C311011.
Once prepared, a transcript of the call will be posted to www.exel.com and a
replay facility will be available through to 1 August (01296 618700, access
code 775384).
During the first six months of 2003 Exel delivered a strong performance in
contract logistics, offset by weaknesses in freight management in the Americas
and Continental Europe. New business gains were encouraging at over �400m,
resulting in net new business of �240m in the first six months, ahead of the
same period last year. In February and March Exel established its own
operations in Pakistan and Indonesia which will further strengthen its leading
position in the region. In June and July the Group announced two acquisitions
in Turkey and Brazil that will add to the growing strength of Exel's global
healthcare business. The acquisition of the UK operations of Power was also
completed in July.
Contract logistics operations in the UK and Americas demonstrated considerable
strengths, improving revenues, profits and underlying margins whilst winning
new business to support future growth. Activities in Continental Europe also
showed some progress after the recent challenges, but there is still much to do
to secure improvements in long-term profitability. Development of contract
logistics operations in Asia has continued well, with the benefit of steady
revenue growth being matched by continued investment in management to maintain
operational excellence.
Exel's freight management operations in Asia Pacific, which now account for
almost 50% of our global international airweight, performed well despite weaker
trading conditions compared to the same period in 2002. The impact of general
economic weakness and the strength of the Euro reduced export volumes and
freight margins in key European markets. Performance in the competitive
American market was held back, in particular, by weaker operating results from
domestic and international operations. US intermodal activities were steady in
weak markets.
Cory Environmental, Exel's waste management business, made progress during the
first half of 2003, delivering revenue growth but a change in business mix led
to a small decline in operating profit.
Impact of translation of foreign currencies
Movements in the dollar and related currencies have had a significant impact on
the translation of foreign income and comparisons with the first half of 2002,
particularly within the segmental analysis of results. During the first half of
2003 the average US dollar exchange rate was 1.61 to the pound, compared to
1.45 in the first half of 2002. Taking into account different degrees of
movement in related currencies this gave rise to an adverse translation impact
of �4.2m at the profit before interest level. The movements in the Euro gave
rise to some offset, helping to reduce the adverse translation impact to �2.5m
before goodwill; the equivalent of reducing reported growth in operating profit
by around 3%. The 2002 turnover and operating profit figures reported in the
narrative have been restated using 2003 average exchange rates so that the
actual achieved growth/declines are explained before currency movements. The
analysis of organic growth in note 5 to the financial statements provides full
details of all the results of the business.
Group performance
At constant exchange rates, turnover from continuing operations was up 10.3% at
�2,391m (2002: �2,167m), up 6.9% on an organic basis (adjusting for movements
in acquisitions and disposals). At constant exchange rates, operating profit,
which is stated before goodwill, was up 1.7% at �71.7m (2002: �70.5m). On an
organic basis operating profit reduced by 2.6%.
Total contract logistics turnover increased by 15.5% to �1,276m at constant
exchange rates, up 11.4% on an organic basis. Overall, contract logistics
operating profit increased by 27.5% to �41.7m (2002: �32.7m) at constant
exchange rates, and by 19.0% on an organic basis. Margins improved strongly to
3.3% (2002: 3.0%), led by the strong growth in the Americas and the measured
progress achieved so far in Continental Europe. Turnover growth in UK
activities was led by the major start up of Tradeteam's Interbrew operations
which is expected to deliver good incremental profits in 2004 onwards. The UK
results include the implementation of FRS17 Retirement Benefits, which charges
the full non-cash pensions service costs against operating profit.
Total freight management turnover increased by 4.5% to �1,057m (2002: �1,012m)
at constant exchange rates. On the same basis freight management operating
profit decreased by 23.4% to �23.3m (2002: �30.4m). Organic growth in turnover
was 1.5%. On an organic basis profits declined 24.0%. Asia Pacific, Exel's
largest airfreight operation, achieved solid organic growth in both revenues
and profits. These were more than offset by weaker performances in Europe and
the Americas. Exel's domestic US activities were adversely impacted by a number
of issues including a pronounced switch by some customers from expedited
airfreight to trucking. Otherwise, the general trends in freight margins and
volumes are as expected at this point in the airfreight cycle.
Environmental turnover increased by 14.9% to �58m (2002: �51m) on an organic
basis. Operating profit decreased by 9.5% to �6.7m (2002: �7.4m) reflecting a
change in the mix of activities, in part related to the extension of the active
life of Cory's landfill operation at Mucking. Overall landfill activities
performed well with firm volumes and pricing at most facilities. Cory's
municipal services activities also performed well.
A more detailed performance review is included in Appendix A - Review of
Operations.
Profit before tax and earnings per share
Net interest costs decreased to �4.7m (2002: �6.8m at constant exchange rates,
�7.2m at actual exchange rates), mainly reflecting more favourable interest
rates and lower average net debt, led by improved working capital management.
As a result interest cover was 15 times (2002: 10 times). Profit before tax,
goodwill, exceptional items and FRS17 finance income, was up 5.7% on a constant
exchange rates basis at �67.0m (2002: �63.4m at constant exchange rates, �65.5m
at actual exchange rates). Earnings per share on the same basis improved 10.8%
to 15.4p (2002: 13.9p at constant exchange rates, 14.4p at actual exchange
rates). Total exceptional items amounted to a net profit of �0.9m (2002: �0.8m)
arising on the disposal of properties and the sale of BRS Taskforce. The
Group's effective tax rate was broadly unchanged from the 2002 full year rate
of 29%. On a FRS3 basis, after goodwill and exceptional items and FRS17 finance
income, profit before tax was �69.7m (2002: �83.3m at constant exchange rates,
�84.7m at actual exchange rates) and earnings per share 15.0p (2002: 18.1p at
constant exchange rates, 18.4p at actual exchange rates). The decrease in FRS3
profits is almost entirely related to the reduction in FRS17 finance income of
�15.0m.
Cash flow
Free cash flow was again healthy at �28.0m (2002: �60.9m). Further reductions
were achieved in working capital compared to the same period last year. As a
result net cash inflow from operating activities was �107.9m (2002: �132.9m).
Tax cash outflows increased by �8.7m, reflecting payment of prior year tax
liabilities. Capital expenditure was lower at �49.4m (2002: �53.8m), although
investment spend was higher at �10.5m (2002: �0.3m), including an investment in
Exel's joint venture partner in China (Sinotrans).
Net cash outflow before financing activities was �31.3m (2002: inflow of �
5.1m), after expenditure of �14.2m on acquisitions (2002: �13.6m). This
contributed to net debt increasing by �24.0m to �177.7m (30 June 2002: �208.3m
and 31 December 2002: �153.7m). Balance sheet gearing at the end of the period
was 26.6% (2002: 32.0%) excluding FRS17 net pension assets and liabilities.
Dividend
The Board is declaring an interim dividend of 7.9p per share, an increase of
5.3% over the previous year. The dividend will be paid on 1 October 2003 to
shareholders on the register on 29 August 2003.
Pensions
Exel now accounts for pensions using FRS17 Retirement Benefits. There have been
no material changes in the impact of the new standard to those expected at the
time of the Group's preliminary results announcement in March 2003. The Group's
triennial valuation of its principal UK pension schemes is underway and the
preliminary results are expected in October. This review will provide the
required information to assess future cash funding requirements. As indicated
in March, Exel is likely to recommence some level of cash contribution in 2004.
This will not be determined until the actuarial valuations have been completed
but the Group expects that any such contribution will be relatively modest.
Strategic progress
May 2003 marked the third anniversary of the merger of former Exel and Ocean
Group that created today's Exel. Over the last three years Exel has developed
its customer focused strategy through investing in all four of its strategic
cornerstones: global coverage, integrated capabilities, people and processes.
During the first half of 2003 the Group has made further progress. Global
coverage was strengthened by the acquisitions of two healthcare businesses in
Turkey and Brazil, and the start-up of our own operations in the emerging
markets of Pakistan and Indonesia, an increasingly important part of extended
supply chains. New business gains in retail, technology and healthcare have
further illustrated the strengthened demand for Exel's integrated solutions,
which combine freight management and contract logistics services. The
developing relationship with Marks & Spencer, with whom Exel is undertaking a
major review of the extended international supply chain, provides a good
example of the solutions and services that are increasingly in demand.
Underpinning Exel's capability to support these projects, the Group has been
investing in an ongoing initiative to rationalise its IT infrastructure and
maintenance costs. Exel has established three primary data centres, with
related backup facilities, replacing some 30 separately managed operations.
These centres are now providing very high standards of data and service
integrity and are the backbone to the successful implementation of a number of
major customer projects around the world.
The Group's consistent ability to win new business, much of which involves
complex supply chain design and management, has been the most tangible evidence
of Exel's competitive advantage. Whilst changing economic conditions have
frequently made renewals more volatile, the increasing rate at which Exel is
gaining new business is very pleasing. In the first six months of 2003 Exel
gained just over �400m of new business, compared to around �350m and just over
�300m in the same periods in 2002 and 2001 respectively. Of these recent gains,
over 20% involve integrated solutions.
The results of the annual survey of logistics industry trends, completed by
MORI on behalf of Exel, have confirmed several key trends. Based on the
responses of nearly 600 industry professionals and senior management, the
report highlighted that outsourcing of logistics is set to remain a key
industry trend over the next few years. The demand for integrated solutions,
where Exel's competitive advantage is strongest, remains of major interest to
over 80% of respondents in the survey.
Prospects
Exel's first half results confirm that its business model continues to provide
competitive advantage. Margin improvements in contract logistics demonstrate
that Exel's customer focus and project management capabilities are delivering
high standards of service. Freight management markets have been very
competitive with reduced volumes and softer freight prices in the Americas and
Asia Pacific.
Despite tough market conditions Exel has made considerable progress
successfully implementing new contracts and improving operating performance at
several businesses. There is still some work to be done in European contract
logistics and domestic US freight management, but performance to date confirms
the Group's confidence for the balance of 2003.
Progress with new contract gains remains ahead of the same period last year and
the Group enjoys a healthy pipeline of new business opportunities. The Group
continues to expect another year of solid trading progress and is well
positioned to deliver good growth in the medium-term.
Appendix A - Review of Operations
Europe, Middle East & Africa
Contract logistics
At constant exchange rates, contract logistics activities in Europe, Middle
East and Africa increased turnover by 8.4% to �824m (2002: �760m). Organic
growth was also 8.4%. On the same basis operating profit improved 12.7% to �
17.8m (2002: �15.8m) with margins improving to 2.2% (2002: 2.1%). The strong
performance reflected the modest progress made in Europe, improving both
margins and profitability, and the consistent growth and improved operational
performance in UK activities. Significant new business activities are being
integrated that have already led to turnover increases and which should lead to
improved returns in future years.
Exel made good progress developing its position as the leading retail logistics
business in the UK, securing major new business with House of Fraser and Marks
& Spencer amongst others. The Marks & Spencer gain will involve Exel adding a
further six facilities to its existing site at Enfield and transferring some
2,000 new employees to Exel. Consumer business remained steady, with Exel's
shared user activities maintaining a good level of performance. New business
wins were secured with Heinz, Scotts UK Ltd and Sia amongst others. Progress in
Europe for consumer and retail activities remains subdued whilst the
performance of specific loss making contracts was improved. However, a number
of new business gains have been secured during the first six months including a
retail services contract with Carrefour in France. Healthcare performed well
with improved contributions from operations in The Netherlands and new business
gains with Bayer and Edwards Lifesciences across Europe. In the UK, Exel opened
its third facility on its Cherwell site near Banbury to provide extra capacity
for its expanding pharmaceutical business. Exel's special products activities
in the UK secured major new business with Rank Hovis and Morrisons. Automotive
operations in Europe performed well, with operating margins improving on
constant revenues driven by turnarounds at underperforming facilities. In
particular, Spain and Sweden made steady progress after a challenging 2002.
Technology profits made further progress during the first six months of the
year with improved performances in nearly all countries offsetting the business
lost in Spain at the end of June last year. Exel's Tradeteam operation has made
good progress integrating Interbrew UK's drinks distribution operations into
its established network. To support the expanded business, Tradeteam is
implementing new operating systems which, as predicted, have had an adverse
profit impact in the first half. With the integration due to be largely
complete this year, Tradeteam will see significant benefits in 2004.
Freight management
At constant exchange rates, turnover from freight management activities was
broadly unchanged at �385m (2002: �379m) and operating profits declined by
46.9% to �4.3m (2002: �8.1m). On an organic basis, turnover declined by 0.4%
and operating profit declined by 49.4%. The good performance in the UK and
Ireland was offset by weaknesses in Continental European activities, in
particular margin and performance pressures in Belgium and weaker import
activities impacting Exel's German operations. Underlying these trends,
airweight declined by 3% in the first half, compared to the same period last
year.
Within Continental European operations, The Netherlands and Hungary both
delivered strong results, led by new business gains with several major
customers and the further benefit of the gateway development at Schiphol. In
addition, volume and consolidation improvements led to some efficiency gains.
Activities in Italy, Exel's third largest operation in the region, also made
modest progress in revenues and profits. Exel's African operations were
strengthened by the acquisition of Eagle Freight in South Africa, completed
early in 2003. Integration has proceeded well and the business has already
shown progress over the prior year. The Iraq war had minimal impact on Exel's
operations in the Middle East although some one-off costs were incurred related
to increased security. Activities quickly returned to relatively normal levels
after the conflict ceased.
Americas
Contract logistics
At constant exchange rates, turnover from contact logistics activities in the
Americas was up 32.2% at �402m (2002: �304m) with operating profit on the same
basis up 46.1% to �22.2m (2002: �15.2m). On an organic basis, turnover was
ahead 17.8% and profit increased 27.6%. Margin improved to 5.5% (2002: 5.0%),
reflecting a solid performance from all sectors across the region. The strong
performance was led by significant new business start-ups over the last 12
months, particularly in consumer, retail and healthcare operations, and
improved performances at several technology operations.
Exel's consumer, retail and healthcare activities in the Americas showed very
strong growth in the first half, built around a number of major start-ups
completed in the second half of 2002. These included major new facilities for
Coors, Johnson & Johnson, Kellogg's and Procter & Gamble amongst others. The
integration of Power Logistics, acquired in October 2002 has proceeded well and
provided opportunities to leverage the business's customer relationships. Exel
Direct's network of customers and geographic capabilities continued to develop
new business, including major wins with leading consumer and retail customers.
Automotive activities in the US performed well. During the first six months
Exel started several new projects for The Goodyear Tire & Rubber Company, as
part of its ongoing role as the lead logistics manager to the tyre
manufacturer. Performance of Exel's new facility for Ford in Brazil, which
started operation in the second half of 2002, is improving and is ahead of the
weak performance seen in its earlier trading. Technology operations made steady
progress in turnover and profits by focusing on operational efficiencies and
cost management. Growth in Exel's industrial and chemical operations was good
with the business benefiting from new contracts with Crompton, ExxonMobil,
International Paper and Tennant.
Freight management
At constant exchange rates, turnover from freight management activities in the
Americas decreased modestly to �387m (2002: �394m). On the same basis,
operating profit declined by 64.5% to �2.2m (2002: �6.2m). On an organic basis,
turnover was down 1.9% and operating profit declined by 64.5%. Operating
margins declined to 0.6% (2002: 1.6%).
Export airweight from the region was 5% lower than the previous year and US
domestic airfreight volumes declined 29%, reflecting falling underlying demand
and the impact of some switching to the expedited ground transportation
services, also provided by Exel. An increase in the number of smaller shipments
has also led to higher ground and transaction costs that have reduced operating
margin. In Toronto, Canada, Exel commissioned a new integrated logistics and
freight management facility to service its important Canadian operation. In the
US, Exel's intermodal operation performed steadily, against the backdrop of a
weak overall market, with volumes and revenues slightly ahead of last year.
Seafreight operations in the Americas performed well. Price competition has
been particularly severe in the region and Exel has responded in most markets
to protect customer relationships. This action will have some continuing impact
in the second half of the year while being progressively offset by new
programmes to reduce costs.
Asia Pacific
Contract logistics
At constant exchange rates, Exel's contract logistics operations in Asia
Pacific increased turnover by 21.9% to �49m (2002: �40m) led by strong organic
growth of 20.2%. Following over �1m of further investment in developing the
capabilities of the supply chain management team in the region, operating
profits remained steady at �1.7m (2002: �1.7m). Operating margins declined to
3.5% (2002: 4.2%) but marginally ahead of the full year result for 2002. The
ongoing development of Exel's contract logistics team will help ensure that the
Group continues to deliver high standards of service in implementation and
management.
During the first six months of the year, Exel secured significant wins across
11 countries in Asia Pacific with several major consumer, retail and healthcare
, technology, industrial and automotive businesses in the region, including
Halliburton, Novartis, Pfizer, Schwarzkopf and Unilever. The Unilever business
was gained by Exel's new operation in Indonesia. Despite the impact of SARS on
the overall business environment in many economies in the region, Exel's
operations maintained an uninterrupted performance. The Group established
business contingency plans for all its customers in the region to ensure that
potential disruptions would be effectively managed. Several large projects were
delayed by the SARS virus although work on these has recommenced and the
principal facilities should be started this year. Customer developments remain
strong and Exel continues to benefit from its good reputation and strengthened
management capability in the region. The Group was named as a General Motors
Supplier of the Year in recognition of the work done by Exel on General Motors'
supply chain in Australia.
Freight management
At constant exchange rates, turnover from freight management activities in Asia
Pacific increased by 19.3% to �285m (2002: �239m), or 10.1% on an organic
basis. Operating profit increased by 4.3% using constant exchange rates to �
16.8m (2002: �16.1m). Margins remained strong at 5.9% (2002: 6.7%), the change
being accounted for principally by the consolidation of Exel's share of its
joint venture revenues in China, only the profits from which had been included
previously. Underlying margins were supported by effective cost management
across the region, notwithstanding the impact of capacity reductions on certain
routes and the modest impact of managing the potential implications of the SARS
virus.
Exel grew airweight by 5% compared to the same period in 2002, reflecting a
strong underlying performance in winning attractive new business to offset
underlying volume reductions through several major hubs in the region. New
business gains included major wins with customers such as GlaxoSmithKline,
Philips Semiconductors and companies in contract manufacturing, technology,
healthcare and retail sectors.
SARS has had a significant impact on airline passenger schedules and related
cargo space. As a result, this has led to firmer airfreight rates (ie increased
costs to Exel) on intra Asian activities. This has been mitigated by
efficiencies in cargo consolidation and more effective purchasing of freight
capacity on long-haul routes to Europe and the Americas. Seafreight activities
have benefited from some switching of technology consumables from airfreight,
driven by a modest inventory accumulation ahead of the Iraq war which has
reduced the demands on the supply chain for fast replenishment. Exel's
seafreight activities in the region made good progress and the consolidation
services business acquired in February 2002 continues to exceed expectations.
Environmental
Cory Environmental made progress during the first half of 2003, delivering
revenue growth but a change in business mix led to a small decline in operating
profit. Turnover increased 14.9% to �58m (2002: �51m) and profit eased 9.5% to
�6.7m (2002: �7.4m). Operating margins were 11.6% (2002: 14.7%).
Cory's landfill operation at Mucking in Thurrock, Essex, ceased the disposal of
liquid and all other road borne waste to the site during 2002. The impact of
this mix change was partially offset by better revenues from river-borne waste
and from transfer station management at our contracts in Central London as well
as from increased recycling activities. Performance from other sites in
Gloucestershire, the North West and Midlands was helped by a general firming of
landfill prices. The expansion of our contract with Gloucestershire County
Council also contributed to the result. A new landfill site at Lyme and Wood
Pits Colliery in Merseyside was opened in June.
Cory's municipal services business performed well, delivering profit
improvements from most contracts, including Milton Keynes, where performance in
2002 was disappointing.
One future alternative use of Cory's river borne waste, currently being taken
to Mucking, which is expected to close at the end of 2007, is to fuel a
suitable energy from waste facility located on the Thames. A public inquiry
commenced on 1 July into using a site in Bexley for such a purpose.
END