20 th November 2013 Group Plc UK MAIL GROUP plc INTERIM RESULTS For the 6 months ended 30 September 2013 Highlights Group revenues up 7.9%; group operating profit up 63.2% o Parcels: revenues up 21.4%; operating profit up 91.3% o Mail: revenues down 0.3%; operating profit up 10.9% Group profit before tax up 63.0% to 11.9m (2012: 7.3m) Strong balance sheet, net cash at period end of 19.5m (2012: 15.7m) Interim dividend increased by 10.93% to 7.1p per share (2012: 6.4p) Strong levels of customer retention and new client wins Further growth in market share as competitive and market landscape evolves New products and service offerings, including imail and ipostparcels, continue to make good progress Plans progressing for relocation of Birmingham hub and increased automation Guy Buswell, Chief Executive Officer of UK Mail, said:- This has been a period of very strong growth, driven particularly by strong increases in our parcels volumes. Trading to date in the second half has been in line with our expectations and we remain confident of a positive outcome for the full year. This strong performance reflects the excellent progress made over the past three years. We have created a robust operational platform, strong competitive market positions, and we are a much more consumer-focused business. We are now entering the next phase of strategic investment. With significant steps forward planned over the next two years in our capacity, customer-facing technology, I.T. infrastructure and automation, these investments will create the platform for the next chapter of growth for the Group over the coming years. For further information, please contact: UK Mail Group plc Guy Buswell, Chief Executive Officer 0121 335 1111 Steven Glew, Group Finance Director 0175 370 6070 MHP Communications John Olsen James White Giles Robinson Gina Bell 0203 128 8139 1
INTRODUCTION This has been a period of very strong growth for UK Mail. Good levels of trading continued throughout the first half of the year, driven particularly by strong increases in Parcels volumes. Reported Group revenues for the first half increased by 7.9% compared to the same period in the previous year. Adjusting for there being three extra working days compared to the same period in the previous year, underlying Group revenues increased by 5.3%. Group profit before tax increased by 63.0% on the previous year to 11.9m. We estimate that each extra working day equates to some 0.5m of contribution. Adjusting for this factor the underlying increase in profit before tax was some 42.5%. Our Parcels business (43% of group revenues) grew revenues by 21.4% compared to the same period in the previous year. Adjusting for the extra working days the revenue increase was 18.6%. This revenue growth was supported by average daily volume growth of 25%, driven largely by an increase in home deliveries related to on-line shopping. Despite the pricing environment in Parcels remaining challenging, and the mix effect, the operating margin improved to 10.6% (2012: 6.7%), leading to strong growth of 91.3% in operating profit to 11.1m (2012: 5.8m). On an adjusted basis, taking account of the additional working days, operating profit grew by some 67%. We continue to focus on innovation and on operational efficiency to help drive further margin improvements. Revenues in our Mail business (48% of group revenues) reduced by 0.3%. The reduction in revenue was caused by a mix change, with mail volumes actually increasing slightly in the half year, compared to a market that saw an overall volume decline of some 5%. This volume growth was driven by strong customer retention and new customer wins. Operating profit increased by 10.9% to 6.3m (2012: 5.7m) and the operating margin increased to 5.5% (2012: 4.9%). On an adjusted basis, taking account of the impact of the additional working days, operating profit grew by some 8.2%. Our Mail business remains well positioned in its market with a healthy pipeline of new business opportunities. We again saw good progress from imail and related new product innovations. In our Courier business (3% of group revenues) revenues declined slightly by 4.4%. Strong operational management reduced operating costs, helping to increase the operating margin to 17.8% for the period (2012: 13.5%), and leading to 25.9% growth in operating profit to 1.4m (2012: 1.1m). In our Pallets business (6% of group revenues) revenues declined by 1.6% and operating profit declined by 26.1% to 0.6m (2012: 0.8m). Over the past three years, excellent progress has been made in developing the business to its current position, with a clear focus on network efficiency and product innovation. The result is a robust operational platform and strong competitive positions in our chosen markets. The new products that we have introduced have gained valuable traction, and we have become a significantly more consumer-focused business. The benefits can be seen in the strong results achieved for the first half. We are now entering the next phase of strategic investment, with significant steps forward planned in our capacity, customer-facing technology, IT infrastructure and automation. Combined, these will create the platform for the next chapter of growth over the coming years. 2
We continue to make progress with our previously announced plans to relocate our Birmingham hub and to introduce further automation into our parcels operations. Our financial position remains strong, with net funds at the period end of 19.5m (2012: 15.7m). The Board has declared an Interim Dividend of 7.1p; an increase of 10.9% (2012: 6.4p). 3
RESULTS The results can be summarised as follows: Six months ending 30 th September 2013 m 2012 m Inc/(Dec) % Group revenue 243.4 225.7 7.9% Operating profit 11.8 7.2 63.2% Net finance income 0.1 0.1 36.4% Profit before tax 11.9 7.3 63.0% Taxation (2.6) (1.8) 44.0% Profit after taxation 9.3 5.5 69.3% Basic earnings per share 17.0p 10.1p 69.0% Revenue and operating profit are analysed as follows: 2013 m Revenue 2012 m Inc/ (Dec) % 2013 m Operating Profit 2012 m Inc/ (Dec) % Mail 115.6 115.9 (0.3)% 6.3 5.7 10.9% Parcels 105.8 87.2 21.4% 11.1 5.8 91.3% Courier 7.9 8.3 (4.4)% 1.4 1.1 25.9% Pallets 14.1 14.3 (1.6)% 0.6 0.8 (26.1)% Total 243.4 225.7 7.9% 19.4 13.4 45.1% Central costs (7.6) (6.2) 23.8% Operating Profit 11.8 7.2 63.2% Parcels Revenues in Parcels, which comprises the Group s business-to-business (B2B), business-toconsumer (B2C) and international parcel delivery service, were up 21.4% for the period to 105.8m (2012: 87.2m). On an adjusted basis, taking account of the three extra working days compared to the same period last year, Parcels revenues increased by some 18.6%. We have achieved strong volume growth in both the B2B and B2C market segments throughout the period, with Parcels average daily volumes increasing by some 25% compared to the same period last year. This performance is driven by good customer retention and a number of good customer wins. We continue to see an on-going volume mix change towards the lower margin B2C segment. The strong volume growth allows us to spread our fixed costs across the increased volumes and so improve our operating margins. As a result, despite the continued competitive pricing environment, we have improved our Parcels operating margin to 10.6% for the period (2012: 6.7%). On a comparable basis (allowing for the three additional working days) the operating margin would have been some 9.5%. The good growth in revenue combined with the operating margin increase has led to a strong growth in the Parcels operating profit of 91.3% to 11.1m (2012: 5.8m). On an adjusted basis, taking account of the additional working days, Parcels operating profit grew by some 67%. 4
We are making further progress with developing our specialised Retail Logistics product, which provides services tailored to the specific needs of retailers, with a special capability to handle hanging garments. We opened our specialist distribution centre in July 2013, and automated sortation capabilities for hanging garments will be introduced in the second half. We have also introduced improved software which allows us to seamlessly combine our Parcels and Courier networks to provide a flexible product to customers. Our ipostparcels product allows any customer, whether an individual or a small business, to arrange parcel collection and delivery directly with UK Mail through an easy-to-use website. This product has been successfully established in the market and is achieving rapid growth, now handling some 12,000 items per week. In the period we introduced an international service to this product, and we will continue to develop and market this product which we see as a good source of future profitable growth. The overall UK parcels market is growing rapidly but remains highly competitive. We continue to be successful in winning new customers as a result of our high service levels, low-cost network, our strong brand in the market, and dislocation elsewhere in the market. To allow us to handle these increasing volumes we continue to expand our capacity, with three sites in our fifty-strong network having been expanded during the period and a further eight earmarked for expansion in the next 12 months. Our strategy in Parcels is to position ourselves as a high quality operator, differentiated by our provision of the value-added services that customers increasingly demand. We have already made important progress with our driver scanners, and new software and systems will be implemented in the coming months to provide customers with industry leading service and functionality. This will include the capability to provide a next day delivery service that offers clear one-hour delivery and collection windows which can easily be rearranged, and the use of I.T. to provide added functionality and information including text alerts and a web presence through which recipients can readily manage their delivery. We also expect to launch a service within the next six months which will allow customers to deliver and collect parcels from locker boxes and parcel shops. As a result, we will be even more clearly differentiated as a best in class parcels operator. Automation/New Hub We are continuing to progress our plans to introduce further automated sortation into our Parcels operations. The expectation remains that this will cost some 20m which we will incur over the course of this and the next financial year. We have spent 0.5m in the first half of this year with a further 4.5m planned for the second half with the balance to be spent in the next financial year. We are targeting a double digit net return on the investment we make. We expect the automated sortation to go live in early 2015 with the full run rate of benefits being achieved from September 2015. The timing of our plans for automation is linked to the relocation of our Birmingham hub which is required due to the HS2 rail link. Following Parliamentary approval of the Paving Bill for HS2, we expect to complete our contract with HS2 and for it to become unconditional in December 2013. Subject to receipt of planning consent, we would expect construction to start in early 2014 and to be completed by the autumn of 2014. We expect that our capital contribution to the building of the new hub will be some 10m which covers the enhancement of the site and building beyond the scale of the current facility. Of this amount some 5m will be incurred in the second half of this financial year with the balance in the next financial year. 5
The expenditure on the new hub together with the automation expenditure, will be covered from existing cash resources and new bank facilities. Mail Mail revenues declined by 0.3% to 115.6m (2012: 115.9m). On an adjusted basis, taking account of the three extra days compared to the same period last year, Mail revenues declined by some 2.6%. This decline however was largely caused by a mix change towards Customer Direct Access (CDA) mail, which carries a lower revenue per item. Our mail volumes actually increased slightly compared to the prior year, which compares to the expected overall UK mail market decline in volumes of some 5% per annum. This growth in market share has been achieved through generating additional mail volumes from existing customers, and a number of new customer wins. Mail operating profits increased by 10.9% to 6.3m (2012: 5.7m), and the operating margin increased to 5.5% (2012: 4.9%). On a comparable basis (allowing for the three additional working days) the operating margin would have been some 5.1%. To increase the efficiency of our operations and to provide additional facilities to our customers we have invested in two new, state of the art, mail sortation machines, at a capital cost of some 0.8m which reflects our confidence in the future prospects of our mail business. UK Mail remains a market leader with an operational template that is ideally suited to adapt to the demands of an evolving mail market, and we have continued to focus on growing our business by gaining additional volumes from new and existing customers. An important factor in this volume growth is product innovation. imail, our web-to-print postal service, continues to grow strongly. We have invested to increase our capacity and to provide additional services, such as high speed insertion, and we are now developing this product further to support its market leadership, including the addition of data services. imail monthly volumes are now some two million items, average daily volumes are more than 60% higher than a year ago, and we are identifying new areas where the product can be applied. In the coming months we will also be developing our plans for the rapidly growing Packets market, where we see a good opportunity to further increase our market share. Courier Revenues in our Courier business, which provides same-day delivery services, decreased slightly by 4.4% to 7.9m (2012: 8.3m). We are continuing to focus on national contracts that can leverage our network and blue chip customer base. Operating margins increased to 17.8% (2012: 13.5%) helping to increase operating profit by 25.9% to 1.4m (2012: 1.1m). The increase in operating margin reflects the actions management have taken to improve effectiveness and reduce overheads in the business. We have now developed a highly efficient nationwide courier network with a proven ability to support national contracts, which adds to our ability to offer a fully integrated proposition and supports product development across the Group. Pallets Revenues in our Pallets business, which provides a nationwide palletised goods delivery service, decreased by 1.6% to 14.1m (2012: 14.3m). Operating profit for the period declined by 26.1% to 0.6m (2012: 0.8m). 6
The Pallets business is based on a national network of members. In the last financial year we experienced temporary gaps in the network which reduced input volumes and gave rise to additional delivery costs. Those gaps are resolved although it will take time for the new members to achieve the sales volumes that would be expected from established members. This means that operating profits in the current financial year will be held back from previous achieved levels. Changes we have made to our Pallets business have resulted in a more sustainable business model for the future and we remain convinced that it can be successful in a market with good long term growth prospects. Central costs Central costs increased by 23.8% to 7.6m (2012: 6.2m). This increase is largely due to increased I.T. costs, reflecting our increased investment in this key area. Finance costs We have benefitted from the good cash balances maintained in the period. As a result we generated interest income of 0.1m (2012: 0.1m). Cash Flow and Balance Sheet The Group has a strong balance sheet with net funds at the end of the period of 19.5m (2012: 15.7m). Net cash inflow from operating activities totalled 4.7m (2012: 8.3m). Net cash outflow for the period was 8.2m (2012: 3.4m) which included 9.3m of cash consumed in working capital (2012: 1.0m). The normal first half trend for our business is of a working capital outflow, this outflow is larger than normal reflecting increased trade levels and some increases in the trading terms our customers require. Capital expenditure for the period, including assets acquired under finance leases, was 6.7m (2012: 4.7m). The capital expenditure for the period includes 2.6m on network and automation equipment and 3.3m on IT, as we continue to develop our systems infrastructure. The Group paid 6.8m (2012: 6.4m) of dividends during the period being the 12.4p final dividend approved at the AGM on 10 July 2013 (2012: 11.8p). Earnings per share Basic earnings per share increased 69% to 17.0p (2012: 10.1p). Dividend The Board has declared an increased Interim Dividend of 7.1p; an increase of 10.9% (2012: 6.4p), to be paid on 17 January 2014 to shareholders registered on 6 December 2013. CURRENT TRADING & OUTLOOK Trading in the initial weeks of the second half has been in line with our expectations. We continue to expect that the rate of year-on-year Parcels volume growth moderates in the second half compared to that achieved in the first, as we annualise the higher growth achieved in the second half of last year. As we move into the peak period running up to Christmas, we will be highly disciplined in balancing our volumes with our capacity and our infrastructure, such that our very high service levels are maintained. In Mail, we expect our 7
market share to continue to grow. We therefore remain confident of good progress for the remainder of 2013 and a positive outcome for the full year. UK Mail is already a well invested business with very strong competitive positions in our chosen markets, and those markets continue to provide us with attractive further opportunities. Having seen the clear benefits of the strategic progress of recent years, we are now entering a new phase of investment for future growth, to ensure that we are able to capitalise fully on those opportunities in the years ahead. We therefore remain confident of our ability to generate sustainable profitable growth, and increased shareholder value, over the medium term and beyond. Guy Buswell Chief Executive Officer 8
ADDITIONAL DISCLOSURES Principal risks and uncertainties facing the business UK Mail s business and share price may be affected by a number of risks, not all of which are within our control. The process UK Mail has in place for identifying, assessing and managing risks is set out in the Corporate Governance Report on page 26 of the 2013 Annual Report and Accounts. The specific principal risks and uncertainties that may affect the Group's performance, together with relevant mitigating factors as identified by the Group s risk management process were discussed on page 16 of the Group s 2013 Annual Report and Accounts. These included risks relating to HS2, IT systems, business continuity, legislation and regulation, competition and fuel factors, in addition to financial risks including credit risk. It is considered that these still remain the most likely areas of potential risk and uncertainty, with the position unchanged from that set out in the 2013 Annual Report and Accounts. Cautionary statement This interim announcement contains certain forward-looking statements, which have been made by the directors in good faith based on the information available to them up to the time of the approval of this report and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. Nothing in this report should be construed as a profit forecast. Going concern As stated in note 2 to the condensed consolidated interim financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. Related-party transactions As stated in note 17 to the condensed consolidated interim financial statements, there were no transactions with related parties during the six months ended 30 September 2013 which have had a material effect on the results or the financial position of the Group. The nature of the related party transactions has not changed from those described in the Group s 2013 Annual Report and Accounts. 9
Consolidated Statement of Comprehensive Income for the six months ended 30 September 2013 Unaudited Six months to 30 September 2013 Unaudited Six months to 30 September 2012 Audited Year to 31 March 2013 Note m m m Revenue 6 243.4 225.7 475.4 Cost of sales (212.0) (201.6) (420.7) Gross profit 31.4 24.1 54.7 Administrative expenses (19.6) (16.9) (37.0) Operating profit 6 11.8 7.2 17.7 Finance income 0.1 0.1 0.2 Finance costs - - (0.1) Profit before taxation 11.9 7.3 17.8 Total taxation 12 (2.6) (1.8) (4.3) Profit for the period 9.3 5.5 13.5 Total comprehensive income attributable to: Equity holders of the company 9.3 5.5 13.5 Basic earnings per share 13 17.0p 10.1p 24.7p Diluted earnings per share 13 16.9p 10.1p 24.6p The notes on the following pages form an integral part of these condensed consolidated interim financial statements 10
Consolidated Balance Sheet at 30 September 2013 Assets Non-current assets Unaudited 30 September 2013 Unaudited 30 September 2012 Audited 31 March 2013 Note m m m Goodwill 7 9.5 9.5 9.5 Intangible assets 7 5.8 4.9 4.9 Investment properties 7 1.8 1.8 1.8 Property, plant and equipment 7 35.2 33.1 33.5 Deferred tax assets 0.4 0.3 0.3 Current assets 52.7 49.6 50.0 Inventories 0.4 0.2 0.3 Trade and other receivables 70.0 62.0 66.7 Cash and cash equivalents 10 20.0 18.2 28.2 Liabilities Current liabilities 90.4 80.4 95.2 Borrowings 10 (0.5) (1.4) (0.8) Trade and other payables (69.7) (62.1) (74.3) Current tax liabilities (2.8) (1.9) (2.3) Provisions 11 (0.2) (0.7) (0.3) (73.2) (66.1) (77.7) Net current assets 17.2 14.3 17.5 Non-current liabilities Borrowings 10 - (1.1) (0.4) Deferred tax liabilities (1.4) (2.0) (1.7) Provisions 11 (1.2) (0.9) (1.0) (2.6) (4.0) (3.1) Net assets 67.3 59.9 64.4 Shareholders' equity Ordinary shares 8 5.5 5.5 5.5 Share premium 8 15.3 15.3 15.3 Retained earnings 46.5 39.1 43.6 Total shareholders' equity 67.3 59.9 64.4 11
Consolidated Statement of Cash Flows for the six months ended 30 September 2013 Continuing operations Operating activities Unaudited Six months to 30 September Unaudited Six months to 30 September Audited Year to 31 March 2013 2012 2013 Note m m m Cash generated from operations 9 7.0 10.0 31.1 Finance income received 0.1 0.1 0.1 Finance costs paid - - (0.1) Taxation paid (2.4) (1.8) (4.1) Net cash inflow from operating activities 4.7 8.3 27.0 Investing activities Proceeds from disposal of property, plant and equipment 7 0.1 0.1 - Purchase of property, plant and equipment 7 (3.7) (3.0) (6.2) Purchase of intangible assets 7 (1.7) (1.1) (1.6) Net cash outflow from investing activities (5.3) (4.0) (7.8) Financing activities Dividends paid to shareholders 14 (6.8) (6.4) (9.9) Repayment of finance lease liabilities 10 (0.7) (0.4) (0.8) Net proceeds from issue of ordinary share capital 0.1 0.1 0.1 Purchase of UK Mail shares by the Company s Employee Share Ownership Trust (0.2) - - Repayment of borrowings 10 - (1.0) (2.0) Net cash outflow from financing activities (7.6) (7.7) (12.6) Net (decrease)/increase in cash and cash equivalents 10 (8.2) (3.4) 6.6 Cash and cash equivalents at the start of the period 10 28.2 21.6 21.6 Cash and cash equivalents at the end of period 10 20.0 18.2 28.2 12
Consolidated Statement of Changes in Shareholders' Equity (unaudited) Ordinary shares Attributable to equity holders of the company Share premium Retained earnings Total equity Note m m m m Balance as at 1 April 2013 5.5 15.3 43.6 64.4 Profit for the period - - 9.3 9.3 Total comprehensive income for the period - - 9.3 9.3 Dividends paid to shareholders 14 - - (6.8) (6.8) Purchase of UK Mail shares by the ESOT - - (0.1) (0.1) Employees share option scheme: - share based payments - - 0.4 0.4 - deferred tax on employee share options - - 0.1 0.1 Total transactions with shareholders recorded directly in equity - - (6.4) (6.4) Balance as at 30 September 2013 5.5 15.3 46.5 67.3 Balance as at 1 April 2012 5.5 15.3 40.1 60.9 Profit for the period - - 5.5 5.5 Total comprehensive income for the period - - 5.5 5.5 Dividends paid to shareholders 14 - - (6.4) (6.4) Employees share option scheme: - deferred tax on employee share options - - (0.1) (0.1) Total transactions with shareholders recorded directly in equity - - (6.5) (6.5) Balance as at 30 September 2013 5.5 15.3 39.1 59.9 Balance as at 1 April 2012 5.5 15.3 40.1 60.9 Profit for the year - - 13.5 13.5 Total comprehensive income for the year - - 13.5 13.5 Dividends paid to shareholders 14 - - (9.9) (9.9) Employees share option scheme: - share-based payments - - (0.1) (0.1) Total transactions with shareholders recorded directly in equity - - (10.0) (10.0) Balance as at 31 March 2013 5.5 15.3 43.6 64.4 13
Notes to condensed consolidated interim financial statements 1 General information UK Mail Group Plc ( the Company ) and its subsidiaries (together the Group ) are engaged in the provision of express collection and delivery services for mail, parcels and palletised goods. The Company (registration number 02800218) is a public limited company incorporated and domiciled in England. The address of its registered office is 120 Buckingham Avenue, Slough, SL1 4LZ. The Company is listed on the London Stock Exchange (LSE: UKM). The condensed consolidated interim financial statements were approved for issue on 19 November 2013. The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Within the notes to these financial statements the half year periods to 30 September 2013 and 2012 are unaudited. Statutory accounts for the year ended 31 March 2013 were approved by the Board of directors on 21 May 2013 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or (3) of the Companies Act 2006. 2 Basis of preparation The condensed consolidated interim financial statements for the half year ended 30 September 2013 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. They do not include all of the information and disclosures required for full annual financial statements, and should be read in conjunction with the consolidated annual financial statements of the Group as at and for the year ended 31 March 2013, which were prepared in accordance with IFRSs as adopted by the European Union. The consolidated financial statements of the Group as at and for the year ended 31 March 2013 are available upon request from the Company's registered office at 120 Buckingham Avenue, Slough, SL1 4LZ or at www.ukmail.com. The condensed consolidated interim financial statements are presented in Sterling. After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Group meets its day to day working capital requirements through operating cash flows, with borrowings to fund acquisitions and capital expenditure, as necessary. Movements in the Group's overall net funds position are shown in note 10. The Group has a committed bank facility in place, comprising of a 7m revolving credit facility until 30 November 2014. Discussions are proceeding to put in place replacement facilities. Accordingly they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. 3 Accounting policies The accounting policies applied by the Group in these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated annual financial statements as at and for the year ended 31 March 2013. Adoption of new standards, and amendments to standards or interpretations, which are mandatory for the first time for the financial year beginning 1 April 2013, have had no material impact on the financial position and performance of the Group. 4 Changes in accounting estimates The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. 14
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 March 2013. There have been no material changes in contingent liabilities during the current interim period. 5 Financial instruments The activities of the Group exposes it to a number of financial risks, including credit risk, market risk, price risk, liquidity risk, foreign exchange risk and capital risk. These condensed consolidated interim financial statements do not include all of the financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s 2013 Annual Report and Accounts. There have been no changes in the Group s financial risk management policies since the year end 31 March 2013. 6 Segmental information Management has determined the operating segments based on reports that are reviewed by the Board for making strategic decisions. These reports reflect the Group's defined management structure, whereby distinct managers are accountable to the Board for the results and activities of their identified segments and the different markets in which they operate. The Board, which is the Group s chief operating decision maker, considers that the Group has four reportable operating segments. The Group s operating segments consist of Mail, Parcels, Courier and Pallet Services. The Board assesses the performance of the operating segments based on a measure of operating profit before net finance costs and taxation. Central costs comprises of network costs and central support costs. Central assets comprise mainly of corporate assets, cash, current and deferred tax balances. The Group manages its business segments on a national basis, with all its operations in the UK, as are nearly all of its customers. Inter-company transactions, (which are conducted on an arm s length basis) balances and unrealised gains on transactions between segments are eliminated. Unrealised losses are also eliminated. No individual customer accounted for more than 10% of revenue in the periods included in these condensed consolidated interim financial statements. 15
Six months ended 30 September 2013 (unaudited) Business Segment Mail Parcels Courier Pallets Central Total m m m m m m Segmental revenue 115.6 105.8 9.1 14.1-244.6 Inter-segment revenue - - (1.2) - - (1.2) Group revenue 115.6 105.8 7.9 14.1-243.4 Operating profit/(loss) 6.3 11.1 1.4 0.6 (7.6) 11.8 Finance income 0.1 Profit before taxation 11.9 Taxation (2.6) Profit for the period 9.3 Assets Segment assets 41.5 65.2 0.1 9.2 43.9 159.9 Eliminations (10.5) (2.2) - (4.1) - (16.8) Total assets 31.0 63.0 0.1 5.1 43.9 143.1 Six months ended 30 September 2012 (unaudited) Business Segment Mail Parcels Courier Pallets Central Total m m m m m m Segmental revenue 115.9 87.2 9.2 14.3-226.6 Inter-segment revenue - - (0.9) - - (0.9) Group revenue 115.9 87.2 8.3 14.3-225.7 Operating profit/(loss) 5.7 5.8 1.1 0.8 (6.2) 7.2 Finance income 0.1 Profit before taxation 7.3 Taxation (1.8) Profit for the period 5.5 Assets Segment assets 59.7 94.5 0.1 9.4 34.5 198.2 Eliminations (28.2) (35.4) - (4.6) - (68.2) Total assets 31.5 59.1 0.1 4.8 34.5 130.0 16
Year ended 31 March 2013 (audited) Business Segment Mail Parcels Courier Pallets Central Total m m m m m m Revenue 241.6 189.3 18.8 28.0-477.7 Inter-segment revenue - - (2.3) - - (2.3) Group revenue 241.6 189.3 16.5 28.0-475.4 Operating profit/(loss) 10.7 16.3 2.6 0.8 (12.7) 17.7 Finance income 0.2 Finance costs (0.1) Profit before taxation 17.8 Taxation (4.3) Profit for the year 13.5 Assets Segment assets 52.6 58.6 0.1 9.0 46.5 166.8 Eliminations (17.1) - - (4.5) - (21.6) Total assets 35.5 58.6 0.1 4.5 46.5 145.2 30 September 30 September 31 March 2013 2012 2013 Total segment capital expenditure 4.0 2.5 5.0 Central capital expenditure 2.7 2.2 4.1 Total capital expenditure 6.7 4.7 9.1 Total segment depreciation and amortisation 2.1 2.3 4.7 Central depreciation and amortisation 1.7 1.5 3.0 Total depreciation and amortisation 3.8 3.8 7.7 7 Property, plant and equipment, intangible assets, goodwill and investment properties Six months ended 30 September 2013 (unaudited) m Opening net book value at 1 April 2013 49.7 Additions 6.7 Disposals (0.3) Depreciation and amortisation (3.8) Closing net book value at 30 September 2013 52.3 17
Six months ended 30 September 2012 (unaudited) m Opening net book value at 1 April 2012 48.5 Additions 4.7 Disposals (0.1) Depreciation and amortisation (3.8) Closing net book value at 30 September 2012 49.3 Year ended 31 March 2013 (audited) m Opening net book value at 1 April 2012 48.5 Additions 9.1 Disposals (0.2) Depreciation and amortisation (7.7) Closing net book value at 31 March 2013 49.7 8 Share Capital Number of Ordinary Share Unaudited ordinary shares premium Total Capital shares m m m At 1 April 2013 54,732,981 5.5 15.3 20.8 Allotted under SAYE schemes 1,501 - - - At 30 September 2013 54,734,482 5.5 15.3 20.8 At 1 April 2012 54,731,471 5.5 15.3 20.8 Allotted under SAYE schemes 1,510 - - - At 30 September 2012 54,732,981 5.5 15.3 20.8 The Company s Employee Share Ownership Trust ( ESOT ) holds shares in the Company for subsequent transfer to employees under its incentive scheme awards. Shares held by the ESOT are not voted at shareholder meetings and do not accrue dividends. At 31 March 2013 the ESOT held a total of 55,493 shares (31 March 2012: 126,471 shares). During the six months to 30 September 2013, the ESOT settled 20,473 shares following the successful vesting of the 2010 SAYE plan (Six months to 30 September 2012: 25,400 shares under the 2009 SAYE plan), 51,100 shares following the successful vesting of the 2010 LTIP plan (Six months to 30 September 2012: no shares), and repurchased 31,811 shares at 5.10 (Six months to 30 September 2012: no shares), and as a result held 15,731 shares at 30 September 2013 (30 September 2012: 101,071 shares). 9 Reconciliation of profit to net cash flow generated from operations Unaudited Unaudited Audited Six months to Six months to Year to 30 September 30 September 31 March 2013 2012 2013 m m m Profit for the period 9.3 5.5 13.5 Taxation 2.6 1.8 4.3 Finance income receivable (0.1) (0.1) (0.2) Finance costs payable - - 0.1 Depreciation and amortisation 3.8 3.8 7.7 18
Loss on disposal of property, plant and equipment 0.3-0.2 Share-based payments 0.4 - (0.1) Decrease/(increase) in trade and other receivables (3.3) 1.4 (3.2) (Increase)/decrease in inventories (0.1) - (0.1) (Decrease)/increase in trade and other payables (6.0) (2.0) 9.6 (Decrease)/increase in provisions 0.1 (0.4) (0.7) Net cash flow generated from operations 7.0 10.0 31.1 10 Analysis of net funds/(debt) Audited At 1 April 2013 Cash flow Other Unaudited At 30 September 2013 m m m m Cash at bank and in hand 28.2 (8.2) - 20.0 Total cash 28.2 (8.2) - 20.0 Debt due within one year - - - - Finance leases due within one year (0.8) 0.7 (0.4) (0.5) Debt due after one year - - - - Finance leases due after one year (0.4) - 0.4 - Total debt (1.2) 0.7 - (0.5) Net funds 27.0 (7.5) - 19.5 Audited At 1 April 2012 Cash flow Other Unaudited At 30 September 2012 m m m m Cash at bank and in hand 21.6 (3.4) - 18.2 Total cash 21.6 (3.4) - 18.2 Debt due within one year (1.0) 1.0 (1.0) (1.0) Finance leases due within one year (0.8) 0.4 - (0.4) Debt due after one year (1.0) - 1.0 - Finance leases due after one year (0.4) - (0.7) (1.1) Total debt (3.2) 1.4 (0.7) (2.5) Net funds 18.4 (2.0) (0.7) 15.7 Audited At 1 April 2012 Cash flow Other Audited At 31 March 2013 m m m m Cash at bank and in hand 21.6 6.6-28.2 Total cash 21.6 6.6-28.2 19
Debt due within one year (1.0) 1.0 - - Finance leases due within one year (0.8) 0.8 (0.8) (0.8) Debt due after one year (1.0) 1.0 - - Finance leases due after one year (0.4) - - (0.4) Total debt (3.2) 2.8 (0.8) (1.2) Net funds 18.4 9.4 (0.8) 27.0 11 Provisions for liabilities Unaudited Unaudited Unaudited Restructuring Property Total costs related Provisions Six months ended 30 September 2013 m m m At 1 April 2013 0.5 0.8 1.3 Provided during the period - 0.2 0.2 Utilised during the period (0.1) - (0.1) At 30 September 2013 0.4 1.0 1.4 20
Six months ended 30 September 2012 Unaudited Unaudited Unaudited Restructuring Property Total costs related Provisions m m m At 1 April 2012 1.4 0.7 2.1 Provided during the period - 0.2 0.2 Utilised during the period (0.6) (0.1) (0.7) At 30 September 2012 0.8 0.8 1.6 Audited Audited Audited Restructuring Property Total costs related Provisions Year ended 31 March 2013 m m m At 1 April 2012 1.4 0.7 2.1 Provided during the period - 0.4 0.4 Utilised during the period (0.9) (0.3) (1.2) At 31 March 2013 0.5 0.8 1.3 The provision for property leases relates to dilapidations on properties under leases expiring within 1 year and up to 13 years. The properties have been inspected by the Group Property Manager, and estimates made for the anticipated dilapidation expenditure to be incurred prior to sub-letting, or reversion of the lease. The provision for restructuring costs relates to costs expensed in the year ended 31 March 2012, and relates mainly to an onerous lease expiring within four years. 21
12 Taxation Taxation is provided based on management s best estimate of the effective tax rate expected for the full financial year. The estimated annual tax rate used for the six months to 30 September 2013 is 22.0% (Six months to 30 September 2012: 25.0%, Year to 31 March 2013: 24.3%). This reduction reflects the fall in the UK Corporation tax rate from 24% to 23% on 1 April 2013 and the impact on deferred tax of further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) that were substantively enacted on 2 July 2013. 13 Earnings per share The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. The earnings per share is calculated as follows; Unaudited Unaudited Audited Six months to Six months to 30 Year to 30 September September 31 March 2013 2012 2013 m m m Profit after tax 9.3 5.5 13.5 The weighted average number of shares used in the calculations are as follows; No. of shares No. of shares No. of shares Weighted average number of shares in issue 54,685,253 54,573,649 54,632,719 Dilutive effect of options 227,339 14,620 75,042 Diluted weighted average number of shares 54,912,592 54,588,269 54,707,761 Earnings per share - basic 17.0p 10.1p 24.7p Earnings per share - diluted 16.9p 10.1p 24.6p 22
14 Dividends The final dividend for the year ended 31 March 2013 of 12.4p per share (2012: 11.8p) was paid on 26 July 2013. The 6.8m distribution (2012: 6.4m) is reflected in the financial statements for the six months ended 30 September 2013. In addition, the Directors propose an interim dividend of 7.1p per share (2012: 6.4p per share) payable on 17 January 2014 to shareholders who are on the register at 6 December 2013. This interim dividend, amounting to 3.9m (2012: 3.5m) has not been recognised as a liability in these condensed consolidated interim financial statements. 15 Commitments and contingencies Group capital expenditure committed, for the purchase of property, software, plant and equipment, but not provided for in these financial statements amounted to 64,000 (2012: nil). 16 Events occurring after the reporting period There are no material events occurring after the reporting period, other than the proposed dividend referred to in note 14. 17 Related-party transactions The nature of the related party transactions of the Group has not changed from those described in the Groups 2013 Annual Report and Accounts. There were no transactions with related parties during the six months ended 30 September 2013 which have had a material effect on the results or the financial position of the Group. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. 18 Risks and uncertainties The specific principal risks and uncertainties that may affect the Group's performance, together with relevant mitigating factors as identified by the Group s risk management process were discussed on page 16 of the Group s 2013 Annual Report and Accounts. These included risks relating to HS2, IT systems, business continuity, legislation and regulation, competition and fuel factors, in addition to financial risks including credit risk. It is considered that these still remain the most likely areas of potential risk and uncertainty, with the position unchanged from that set out in the 2013 Annual Report and Accounts. 19 Seasonality Historically, the Group experiences marginally greater demand for its parcels and palletised goods collection and delivery services in the second half of the year, as consignments increase in advance of the Christmas season. Such trends are not discernible within either the mail or courier markets. 23
Statement of directors responsibilities The Interim report is the responsibility of, and has been approved by, the directors of UK Mail Group plc. The directors are responsible for preparing the Interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. The Disclosure and Transparency Rules require that the accounting policies and presentation applied to the half-yearly figures must be consistent with those applied in the latest published annual accounts, except where the accounting policies and presentation are to be changed in the subsequent annual accounts, in which case the new accounting policies and presentation should be followed, and the changes and the reasons for the changes should be disclosed in the Interim report, unless the United Kingdom Financial Services Authority agrees otherwise. The directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim financial reporting, as adopted by the European Union, and that the interim management report includes a fair review of: the important events that have occurred during the first six months and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year as required by DTR 4.2.7; and related-party transactions that have taken place in the first six months of the current financial year and changes in the related-party transactions described in the last annual report that have materially affected the financial position or performance of the group during the first six months of the current financial year as required by DTR 4.2.8. The directors of UK Mail Group plc are listed in the UK Mail Group Annual Report for the year ended 31 March 2013. A list of current directors is maintained on the UK Mail Group website: www.ukmail.com. By order of the Board Guy Buswell, Chief Executive Steven Glew, Finance Director 19 November 2013 19 November 2013 24
Independent review report to UK Mail Group plc Introduction We have been engaged by the company to review the condensed consolidated interim financial statements for the six months ended 30 September 2013, which comprises the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Shareholders Equity and related notes. We have read the other information contained in the interim management report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements. Directors responsibilities The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated interim financial statements included in this interim financial report has been prepared in accordance with IAS 34, Interim financial reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 25
Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated interim financial statements in the interim financial report for the six months ended 30 September 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants Thames Valley 19 November 2013 Notes: (a) The maintenance and integrity of the UK Mail Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the half-yearly financial information since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. 26