business post biz

Report & Accounts 2003 CONTENTS Highlights Chairman’s Statement Chief Executive’s Review Financial Review Directors and Advisers Corporate Governance Corporate Social Responsibility Remuneration Report Directors’ Report Independent Auditors’ Report Consolidated Profit and Loss Account Consolidated Balance Sheet Company Balance Sheet Consolidated Cash Flow Statement Notes to the Financial Statements Five Year Summary of Results Notice of Meeting 1 2 4 12 14 17 19 20 26 28 29 30 31 32 33 41 42 Business Post is one of the UK’s leading express delivery companies We provide high quality services for time sensitive deliveries, offering excellent delivery performance supported by information systems which are at the forefront of the industry. The majority of our activity is represented by overnight parcel delivery to businesses in the UK. Our other services include international parcels and mail, specialist home delivery, and same day courier deliveries throughout the UK. According to an independent survey, we are the only express delivery company to increase its market share in each of the last 5 years. HIGHLIGHTS The year ended 31 March 2003 has seen the successful implementation of the first year of our three year plan. Financial • Turnover up by 18.7% to £156.3 million • Profit before tax up by 6.6% to £16.1 million • Earnings per share up by 6.0% to 21.2p • Dividends up 5.6% to 16.9p per share Operational • Successful implementation of new business unit structure, with market share gains in all business units • Improved customer retention levels through focus on on-time delivery performance • Expansion and strengthening of the franchise network • Complementary new services added through the acquisition of technical courier BXT Report & Accounts 1 CHAIRMAN’S STATEMENT I am pleased to report a successful first year’s implementation of the three year plan that we set out in November 2001. As you may recall from last year’s Report & Accounts, the strategic review concluded that: • Express (UK express business-to-business parcels) should remain the Group’s core activity; • five existing or new businesses in related sectors - UK Pallet Express, International, HomeServe, UK Today and UK Mail should be developed alongside the core activity, each led by an expert in that sector; • strategic acquisitions should be selectively considered, either to achieve critical mass in a particular activity or to add a complementary service to the existing range of time-definite deliveries; • in all its businesses, Business Post should remain a premium rather than a volume player; and • the franchise network, which Business Post regards as a competitive advantage, should be increased in number and strength. Last year, I made the following remarks in my Chairman’s Statement about short term prospects "The current year is the first of a three year strategic plan during which we expect to make substantial progress. It will be a year of investment for the future, notably in the franchise network and the Group’s newer and smaller businesses. Notwithstanding these cost increases, further progress can be expected in the current year." All of the above conclusions of the strategic review have been put into effect: • Express has grown substantially its turnover and increased its market share, to approximately 7%, ranking it equal fourth; • all the Group’s businesses, including UK Pallet Express (as part of Express), have developed significantly under the guidance of their own managing director, except UK Mail, which has been unable to commence trading for reasons outside its control; Peter Kane Chairman • Business Post has made its first acquisition since its flotation in 1993, the technical courier BXT; • Business Post is increasingly focused on achieving a substantial premium over the prices charged by the high volume/low price operators; and • the franchise network is not just larger but also considerably stronger. Despite the planned cost increases, pre-tax profit was 6.6% better at £16.1 million, in line with long standing market expectations, whilst earnings per share were 6.0% higher at 21.2p. As I concluded a year ago, "The Board remains very confident about the Group’s long-term potential." “THE BOARD REMAINS VERY CONFIDENT ABOUT THE GROUP’S LONGTERM POTENTIAL.” PETER KANE, CHAIRMAN 2 Business Post Group plc BXT is a technical courier business acquired in February 2003 Business Post provides high quality services for time sensitive deliveries to businesses and consumers Report & Accounts 3 CHIEF EXECUTIVES’S REVIEW BUSINESS OVERVIEW Business Post provides high quality services for time sensitive deliveries, offering excellent delivery performance supported by information systems which are at the forefront of the industry. Through partnerships and alliances, deliveries can be made anywhere in the world. However, all the Group’s business has a UK element and approaching 90% is intra-UK. Deliveries range from documents to pallet-based heavy freight, but the vast majority comprises packages weighing 5-30kg. The sectors served are overnight business-to-business (by the Express and International business units), overnight business-toconsumer (by HomeServe) and same day (by UK Today). UK Mail, the proposed UK business mail service, intends to offer a two day “Business Class” service. Express, International and HomeServe all perform collection and delivery activity in the UK through a network of 22 corporate and 41 franchised depots linked by an overnight linehaul operation owned and managed centrally. International has its gateway site at Bishops Stortford linked to FedEx’s own gateway at Stansted. UK Today currently operates from 24 of the depots but, due to the same day nature of its business, operates its own pool of drivers and does not utilise the overnight linehaul operation. For overnight deliveries, packages are sorted into metal cages at collection locations, and these cages transit the country to the relevant delivery location, thereby reducing the level of manhandling and risk of damage. Although there is a national hub at Birmingham, regional sorting is also carried out at certain mini-hub operations. This reduces vehicle mileage and enables later collection times from customers. Sales and customer services at each of the depots are supported by central marketing and sales management, and a telesales operation at UK Today. The five year contract with FedEx, which commenced in September 2001, accounts for approximately 10% of the Group’s turnover. No other customer accounts for over 5%. Roughly 20% of Group turnover is with the high tech sector. The entire market is deregulated, with the exception of the UK letter mail market below 350g or £1, which is regulated by Postcomm, an independent body established by statute. A summary of the main developments within each of the business units is set out on the following pages. “THE STRONG GROWTH REFLECTS THE GREATER FOCUS RESULTING FROM HAVING SEPARATE BUSINESS UNITS” PAUL CARVELL, CHIEF EXECUTIVE 4 Business Post Group plc EXPRESS Express currently represents 79% of the Group’s turnover Express, which accounted for 79% (2002: 82%) of Group turnover, is the Group's core UK business-to-business parcel service. It specialises in nextday deliveries for those customers who need a consistent and reliable service backed up by sophisticated information systems, thereby differentiating itself from high volume/low price operators. Carl Hutber - Express MD (centre) with two of his senior managers, Joanne Hardy and Scott Shepherd In the year, Express increased its turnover by 14%, to £123.8m from £108.4m, in a market estimated to have increased only marginally. As a result, the directors believe that Express has improved its market share from 6% to 7%. The strong revenue growth reflects the improved quality of delivery performance which has assisted new business wins and further reduced customer churn. The improving level of customer demand across the year allowed Express to implement a number of pricing initiatives which have progressively improved yield, and an objective for the current year is to improve further the quality of revenue. This will be achieved through targeted sales and marketing initiatives aimed at customers who are higher users of premium services, and a review of less profitable accounts. • 79% of Group turnover • Market share increased to 7% • Delivery performance improved even further Report & Accounts 5 INTERNATIONAL Business Post is responsible for collecting and delivering parcels for FedEx customers in those areas of the UK not served by FedEx International, which accounted for 12% (2002: 9%) of Group turnover, is responsible for all shipments coming into and leaving the UK and the Republic of Ireland and is primarily a business-to-business service. A high proportion of its activity derives from Business Post's agreement with FedEx, the world's largest express transportation company, as its Global Service Participant in the UK. Under this contract, which commenced in September 2001, Business Post is responsible for collecting and delivering parcels for FedEx customers in those areas of the UK not directly served by FedEx. Additionally, International handles road-based shipments within Europe, working with a number of partners in the EU countries, and offers a full outbound Air Express service utilising the worldwide FedEx delivery network. Much of the turnover increase, to £18.2m from £12.1m, results from the full year contribution from the FedEx relationship, which continues to work well, with very high delivery performance. In addition, the International product offerings were overhauled, tariffs simplified and new products introduced. In particular, International Mail was launched in July 2002, offering business customers an alternative to Royal Mail for their overseas postal requirements, and this has developed satisfactorily during the year. In the current year, a European single pack network is being developed to complement the existing road services for heavier weight consignments, and this should be operational in the summer of 2003. With the market estimated to be worth approximately £1 billion, International has considerable scope for growth. Brian Jenkins - International MD (centre) in discussion with Mark Bischler and Michelle Walker. • 12% of Group turnover • International Mail launched July 2002 • New single pack network being introduced during 2003/04 6 Business Post Group plc HOMESERVE HomeServe provides a high quality next day service to residential addresses HomeServe, which accounted for 5% (2002: 6%) of Group turnover, is the Group's UK business-to-consumer parcel service, providing a high quality next day service to residential addresses, with full proof of delivery and track-and-trace facilities. Bill Chacksfield - HomeServe MD (centre) with Kate Stansby and Maxine Kelly Trading comparisons with the prior year are affected by the loss through administration in January 2002 of HomeServe’s previous biggest customer, Tiny Computers. Turnover growth of 10%, from £6.9m to £7.6m, reflects an underlying growth of 130% if Tiny is excluded. This excellent performance reflects a growing market and a targeted sales approach, concentrating on the upper end of the market (estimated to be worth some £200m) which is both suitable for caged transportation and requires a high quality delivery performance, including IT solutions. In order to provide customers and the ultimate recipients of delivery more choice and greater flexibility, a range of new products is being introduced. These allow items to be left in a designated safe location, an alternative address, or one of 3,200 secure drop-off points, principally retail garages and convenience stores. • 5% of Group turnover • Underlying growth of 130% • Alternative delivery options being introduced Report & Accounts 7 UK TODAY UK Today has over 2,000 active customers UK Today, which accounted for 3% (2002: 1%) of Group turnover, is the Group's UK nationwide same-day courier service. It operates out of both corporate and franchised depots, uses separate delivery vehicles, and has access to the National Express coach network linking 1,200 locations each day. In the year, UK Today extended its operations from six to 24 Group depots and increased its turnover by 165% from £1.7m to £4.5m. A further five sites are planned for the current year and, with national coverage, allows UK Today to target national contracts in a market estimated at £300m where there are few national operators. UK Today is proving to be a good source of referral work for the Group's other services and several new business wins have been achieved in Express and HomeServe from customers impressed by UK Today's performance. To complement UK Today's services for ad hoc business customers, BXT Limited was acquired at the end of February 2003 - Business Post's first acquisition since flotation in 1993. BXT is a Birmingham-based technical courier with a focused customer base for whom services are supplied under contract. In the year ended 31 July 2002, BXT achieved turnover of £4.3m and pre-tax profits of £0.3m. The consideration was £1.9m, net of cash acquired. BXT is settling in well. Plans for the coming year include leveraging the customer bases to develop cross-selling opportunities, and winning more contracts in its existing technical, medical and utility sectors. Mark Holmes - BXT MD and Martyn Wilson - UK Today MD • 3% of Group turnover • Expansion from 6 to 24 depots • Technical Courier BXT acquired in February 2003 8 Business Post Group plc UK MAIL UK Mail is at the vanguard of the introduction of competition into the UK business mail market Guy Buswell - UK Mail MD (left) with Ian Paterson and Lisa Randle UK Mail proposes to offer a business mail service in the UK under its licence from Postcomm, the independent postal industry regulator. This allows it to collect mail from business customers and undertake the initial sorting and trunking before delivery to the relevant Royal Mail delivery location, for local sorting and final delivery. UK Mail did not trade in the year. After extensive negotiations with Royal Mail failed to reach an agreement, in April 2002 UK Mail asked Postcomm to determine a tariff for access to Royal Mail's delivery network. That proposed determination has only recently been received and will be followed by a period of public consultation. The progress towards commencing the service has been frustratingly slow, for reasons outside the Group's control. However, costs (£0.4m) have been kept to a minimum. With the UK market for business mail estimated to be worth some £5bn, this continues to represent a substantial and exciting opportunity. However, no contribution to profit should be assumed for the current financial year. • UK Mail awaiting final determination • Costs being kept to a minimum • UK business mail market estimated at c£5 billion Report & Accounts 9 NETWORK SERVICES Linehaul changes were implemented to reduce the number of vehicle movements and improve operational efficiencies Network Services is responsible for providing high quality collection and delivery services to the Group's business units at a low unit cost. Across the year, a tight control over costs was maintained, with particular focus on reducing the use of third party labour and the level of insurance claims. In addition, the first phase of a change in overnight linehaul arrangements was implemented, to reduce the number of vehicle movements and improve operational efficiencies. The principal element of this project is the introduction of double-decked trailers, and capital expenditure of £0.9m was incurred during the year as part of this process. A further £1.3m will be spent in the current year as the next stages of the project are implemented. An integral part of Network Services is represented by Business Post's franchised depots, which provide a high quality local service and entrepreneurial spirit. As indicated previously, further investment has been made in the franchise network during the year through increased payments and loans introduced from 1 April 2002. This investment, to finance expansion and generate improved sales growth and stability within the franchise network, is already bearing fruit. Relationships with franchisees have been strengthened through the creation of a Franchise Board of Management, involved in the selection of new franchisees and discussing issues of common interest. In addition, a share option scheme was introduced in the summer of 2002 to enable franchisees to share in the broader success of Business Post and to align more closely their interests to those of Business Post's shareholders. In addition to providing collection and delivery services to the Group’s business units, Network Services is also responsible for customer service. During the year, a new customer relationship management system, Discovery, was introduced and the level of staff training was significantly increased. These investments are already evident in the improving level of customer demand and further investments will be made in the current year. 10 Business Post Group plc Discovery - Business Post’s new Customer Relationship Management System STAFF AND ASSOCIATES Training Express is a mobile facility which has enabled a significant increase in staff training Over the past 12 months, the Group has demonstrated the initial success of the three year plan. In particular, the strong growth reflects the greater focus resulting from having separate business units, each with its own dedicated team led by a specialist Managing Director. The Group has also made significant progress in its human resource management during the year, and has set targets for improving employee satisfaction and reducing The first Employee Consultative Group meeting held in April 2003 staff turnover The level of staff training has significantly increased, an Employee Consultative Group has been introduced and a culture of performance management is being established. As a service company, we are entirely dependent upon our staff and associates to provide our customers with a high quality service and I would like to express my thanks to all of them for helping us to achieve substantial progress over the past year. Paul Carvell Chief Executive Report & Accounts 11 FINANCIAL REVIEW REVENUES 2003 Turnover £156.3m 2002 £131.7m Increase 18.7% All four of the Group’s operating business units contributed to the 19% turnover increase: Express 11%, International 5%, HomeServe 1% and UK Today 2%. On a like-for-like basis, the turnover increase was approximately 17%. This reflects the FedEx contract being included in International for 12 months in 2003 but only seven months in 2002, the Tiny Computers business with HomeServe being limited to 10 months in 2002 and none in 2003, and the one month of post-acquisition revenue from BXT in 2003. Turnover growth increased in the second half, reflecting new business wins, notably Systemax Europe from September 2002, and improved levels of customer retention as a result of the continued focus on on-time delivery performance. PROFIT 2003 Gross profit Operating profit Pre-tax profit £34.2m £15.6m £16.1m 2002 £31.6m £14.6m £15.1m Increase 8.2% 6.8% 6.6% “THE AFTER TAX RETURN ON AVERAGE NET ASSETS HAS INCREASED TO 25.1%” PETER FITZWILLIAM, FINANCE DIRECTOR As predicted last year, profit margins have been impacted by a number of cost increases relating to investments for the future. The principal areas of additional expenditure are: higher payments to franchisees; the creation of the new business unit structure; increased levels of staff training and customer service; and the implementation of a new Customer Relationship Management system (“CRM”). The total effect of these investments has been to reduce profits by some £4 million, although this impact has been mitigated by improved efficiencies, tight cost control and operational gearing. Further investments will be made in the current year, however it is expected that additional efficiencies will offset this impact, and that profit margins should be maintained at 2003 levels. EARNINGS AND DIVIDENDS 2003 Earnings per share - basic Earnings per share - diluted Dividends per share 21.2p 21.2p 16.9p 2002 20.0p 20.0p 16.0p Increase 6.0% 6.0% 5.6% Reflecting an effective tax rate of 30.4% (2002: 29.8%), earnings per share increased by 6.0% to 21.2p from 20.0p. At this level, dividends per share of 16.9p, up 5.6%, are again covered 1.25 x. The Board’s policy is to increase both dividends and dividend cover progressively. CASH FLOW Before dividends paid of £8.6 million in 2003 and £8.2 million in 2002, the cash inflow was £3.5 million and £8.7 million respectively. After dividends, there was an outflow of £5.1 million in 2003 and an inflow of £0.5 million in 2002. In comparing the two years, the acquisition in February 2003 of BXT, the technical courier business, accounts for almost £2 million. The other significant item is the £4.7 million increase in working capital. This is primarily the consequence of the rapid growth in the business although there were also some smaller timing differences at last year-end. The working capital position has been held at the same level as the interim stage despite further growth in the company, through a reduction in debtor days from 51 to 48. Net capital expenditure, at £4.1 million, exceeded last year’s £3.3 million. The principal categories of capital expenditure in the year were vehicles, on which £1.9 million was spent, including £0.9m for the acquisition of double-decked trailers to improve operational efficiencies, and IT, on which £1.9 million was spent, in part relating to the new CRM system. In the current year, capital expenditure is expected to increase further, to over £5 million, as additional double-decked trailers are introduced, and the Company’s security infrastructure is upgraded 12 Business Post Group plc .BALANCE SHEET 2003 2002 £6.7m £43.4m £1.6m £45.8m Net cash Equity shareholders’ funds The balance sheet remains strong, with substantial net current assets and net cash. Goodwill, totalling £1.7 million on the acquisition of BXT, will be written off over 20 years. With net assets up 5.5% at £45.8 million, the post-tax return on average net assets has increased to 25.1% (2002: 24.9%). EXPOSURE TO RISK The Group is not significantly exposed to the effects of fluctuations in exchange rates since all income is billed in sterling and costs denominated in foreign currency represent less than 5% of all expenditure. The Group is not significantly exposed to either interest rate risk or liquidity risk as it has little or no borrowings. During the year it has utilised an overdraft facility for working capital requirements and the acquisition of BXT, and a period of overdraft is expected in the current year. It is expected that any future acquisitions will be financed from term loans. TREASURY POLICY The treasury function is run prudently, with cash invested in low risk cash deposits. The Group uses a deposit account in Euros to hedge the Group’s limited exposure to purchases denominated in European currency, and gains and losses on the re-translation of this account offset increases or decreases in the sterling equivalent value of foreign purchases. At the year end, the balance on this account was £0.5 million. SHARE PRICE PERFORMANCE The Company’s shares opened the financial year at 421p but, in its early months, fell with the UK stock market in general. From September the shares outperformed on expectations of reassuring interim results, which were confirmed in mid-November. From December, however, Business Post’s shares could not withstand the malaise surrounding equities and this, together with the disappointing delay to the Postcomm determination, caused them to weaken, before recovering from February to end the year at 354p. Over the course of the year, Business Post’s shares have outperformed the FTSE Support Services index by 42%. Peter Fitzwilliam Finance Director Report & Accounts 13 DIRECTORS & ADVISERS Standing - From left to right Michael Kane (53) Richard Saville (54) Dennis Clark (59) Bill Cockburn CBE, TD (60) Peter Fitzwilliam (43) - Non-Executive Director Joined Business Post in 1974, became Managing Director in 1984, Chief Executive in November 1995 and non-executive director in March 1997. Acted as Chief Operating Officer from July 2000 until resuming his non-executive role on 1 April 2001. Non-Executive Director Is the Finance Director of Halfords and a non-executive director of Alumasc. Was the Finance Director of George Wimpey from 1994 to May 2001. He was appointed to the Board on 1 October 1998. Non-Executive Director Has been the Finance Director of Hunting since 1989. He was appointed to the Board on 1 October 1998. Deputy Chairman Is non-executive Chairman of Parity Group and a non executive director of AWG. Was Chief Executive of The Post Office from 1992 to 1995, Chief Executive of WH Smith from 1995 to 1997 and Group Managing Director of BT from 1997 to 2001. He was appointed as a nonexecutive director on 1 April 2002. Finance Director Joined the Board on 1 February 1999 from Rank Group, where he was head of finance at Odeon Cinemas. Previously, he was with PricewaterhouseCoopers. Seated - From left to right Guy Buswell (41) Peter Kane (56) Paul Carvell (48) Russell Hodgson (54) Alec Ross (47) - Commercial Director Joined Business Post in 1989 and was appointed Sales Director in 1992. After a period elsewhere in the industry he rejoined the Company in 1997 and was appointed to the Board on 12 August 1998. Became Managing Director of UK Mail from 1 July 2002 and Commercial Director from 1 April 2003. Chairman Founded the Company and, with Michael Kane, his brother, was responsible for its development until becoming a non-executive director in 1996. After a period as Chief Executive from August 1998, he resumed his non-executive role on 1 April 2001, and was appointed Chairman on 10 July 2001. Chief Executive Joined the Board on 27 February 2001 from Christian Salvesen where he was Managing Director of the Industrial division. Prior to that he held a number of senior positions in the logistics and express parcels sectors. Group Operations Director Joined the Board on 2 January 2001 from Jacobs Holdings. He has spent 25 years in the parcel industry, holding a number of senior positions. IT Director Joined the Company in June 1997 with 20 years experience in systems development in transport and logistics and was appointed to the Board on 15 September 1998. 14 Business Post Group plc Business Post uses double-decked trailers to improve operational efficiency Bankers - The Royal Bank of Scotland 62-63 Threadneedle Street London EC2R 8LA Financial Advisers - Hawkpoint Partners 4 Great St Helens London EC3A 6HA Stockbrokers - Arbuthnot Securities 2 Lambeth Hill London EC4V 4GG Auditors - PricewaterhouseCoopers LLP Harman House 1 George Street Uxbridge Middlesex UB8 1QQ Solicitors - Dechert 2 Serjeants’ Inn London EC4Y 1LT Eversheds 115 Colmore Row Birmingham B3 3AL Registrars - Computershare Services PO Box 82 The Pavillions Bridgwater Road Bristol BS99 7NH Registered Office - Express House 464 Berkshire Avenue Slough SL1 4PL Report & Accounts 15 Scanning is central to our track and trace system Deliveries range from palleted heavy freight to documents and small packages 16 Business Post Group plc Corporate Governance The Listing Rules of the UK Listing Authority require listed companies to disclose how they comply with the principles of good governance and code of best practice known as the Combined Code. This statement, which incorporates the statement on corporate social responsibility, explains how the Company has applied the principles of good governance set out in Section 1 of the Combined Code and complied with the Code of Best Practice. The Board During the year Business Post has maintained an equal balance of executive and non-executive directors. Biographical details of all directors are set out in the Directors and Advisers statement. Of the five non-executive directors, two are judged to be independent according to the guidelines set out by the Association of British Insurers. All the non-executive directors make a significant contribution to the functioning of the Board and its committees, and no one individual or group dominates the Board’s decision-making process. Although the Combined Code recommends that a majority of non-executive directors should be independent, the Board believes that it has maintained an appropriate balance of directors, bringing a wide range of skills and experience to the Board. All directors are required by the Company’s Articles of Association to submit themselves for re-election at least every three years. The names of those directors standing for re-election to the Board this year are set out in the Notice of the forthcoming Annual General Meeting. The Board’s focus is on strategy formulation, policy and control. There is a formal schedule of matters reserved for decision by the Board which retains all major operational and risk management decisions with the Board. These include the approval of major items of expenditure or commitment, including acquisitions; major operational projects, including new contract wins; financing, including lease/buy decisions and the use of derivatives and insurance; and changes in policy relating to the franchise network. The Board routinely monitors the various financial, operational and commercial risks facing the Company through reports from management. The Chairman is primarily responsible for the working of the Board, and the Chief Executive for the running of the business and implementation of Board strategy and policy. The Board meets formally at least 9 times a year, with other meetings as necessary. The Board receives reports in advance of each meeting from the Chief Executive and Finance Director addressing the financial performance of the Company and developments since the previous meeting, with further reports on particular issues as appropriate. All directors have access to the advice and services of the company secretary, and there is a procedure whereby directors, wishing to do so in the furtherance of their duties, may take independent professional advice at the Company’s expense. In addition, detailed reports are provided to the Board on a monthly basis to enable the Board to discharge its duties. The Board has a number of committees, the principal ones being the audit, remuneration and nomination committees. Each of these committees operates within written terms of reference. The audit committee comprises Dennis Clark, chairman and senior independent non-executive director, Richard Saville, the other independent non-executive director, and Peter Kane, the nonexecutive Chairman. Its duties include the review of the half year and annual financial statements, including significant financial reporting judgements contained in them, before submission to the Board; the review of the Company’s internal financial control system through reports from management and internal and external auditors; and the review of the scope and effectiveness of the Company’s internal audit function. It is also responsible for the selection of the external auditors, the assessment of the scope and results of the external audit and its cost effectiveness, and the independence and objectivity of the external auditors. Details of the remuneration committee are set out in the Remuneration Report. The nomination committee comprises Dennis Clark, chairman, and the other non-executive directors. The committee makes recommendations to the Board of new Board appointments, whether executive or non-executive. Approval of all appointments is a matter for the Board as a whole. Directors’ Remuneration Details of directors’ remuneration are set out in the Remuneration Report. Relations with Shareholders The Company values its dialogue with both institutional and private investors while carefully recognising statutory constraints concerning the disclosure of information. Two-way communication with institutional investors, analysts and private investors is actively pursued, and a series of presentations and meetings are held through the year. Feedback from these meetings is collated by the Company’s advisers and circulated to the Board to keep them informed concerning the views of shareholders. This year’s Annual General Meeting will be held on 10 July 2003 at which time the chairmen of the audit, remuneration and nomination committees will be available to answer shareholder questions. The Company will continue its practice of proposing individual resolutions, including separate resolutions relating to the Directors’ Report and Accounts and the Remuneration Report. Report & Accounts 17 Corporate Governance Accountability and Directors’ Responsibilities Company law requires the directors to prepare accounts for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit of the Group for that period. The Board considers that the Company has complied with the Turnbull report After making due enquiries, the directors are satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. In preparing the accounts, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts. • The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board of directors has overall responsibility for ensuring that the Group maintains a system of internal control to provide it with reasonable assurance regarding effective and efficient operations, internal financial control and compliance with laws and regulations. There are inherent limitations in any system of internal control and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance. The maintenance and integrity of the Business Post Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of those matters and accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Compliance with the Combined Code With the exception of the number of non-executive directors judged to be independent, the Board considers that the Company has complied with the provisions of Section 1 of the Code of Best Practice throughout the financial year. The Board has reviewed the effectiveness of the internal control systems during the period covered by the accounts. This review covered all controls, including financial, operational and compliance controls and risk management. Details of the Group’s activities in relation to its environmental, employment and health and safety responsibilities are set out in the Corporate Social Responsibility statement. • • • • throughout the year. There is a formal ongoing process for identifying, managing and reviewing any changes in the risks faced by the Company. This process operates under the direction of, and is regularly reviewed by, the Board. The key features of the internal control system within the Group are: • clearly defined delegation of responsibilities, including relevant authorisation levels, clearly documented internal procedures set out in operational and administration manuals, regular compliance audit visits to all owned and franchised locations which monitor compliance with procedures and assess the integrity of financial information, review of financial procedures by the internal auditor, close personal involvement of executive directors in monitoring and managing the main risk areas of the business, regular information provided to senior management, covering financial performance and key business indicators, and • monthly monitoring of results against budget and forecast, with major variances being followed up and management action taken where necessary. The Turnbull report issued by the Institute of Chartered Accountants in England and Wales in September 1999 provided further guidance as to how the Combined Code principle on internal control should be applied in practice. 18 Business Post Group plc Corporate Social Responsibility The Board recognises its environmental and employment responsibilities and devotes significant resources towards both monitoring compliance with existing standards and improving those standards. Environmental The Board is responsible for the Group’s Environmental Policy. Responsibility for communicating the policy and monitoring the Group's compliance with it rests with the Group’s Transport Manager and Health & Safety Manager, both of whom report to the Group Operations Director. The policy identifies the following areas as having the most significant impact on the environment: • Consumption of non-renewable fuel resources through the use of diesel to fuel vehicles, and • Air pollution through vehicle emissions. Employment Following the establishment of a central Human Resources function at the beginning of 2002, reporting directly to the Chief Executive, the Group has made significant progress in its HR management and has set targets for improving employee satisfaction and reducing staff turnover. The Group’s employee handbook has been overhauled and reinforces the Group’s commitment to equal opportunities. The Company’s first ever employee satisfaction survey has been carried out and this will become an annual process. The level of staff training has significantly increased over the past Some examples of the actions taken by the Group to minimise its environmental impact include: • • • use of automated vehicle routing to eliminate unnecessary mileage use of double-decked trailers to minimise vehicle journeys training drivers in defensive driving techniques to improve fuel usage and reduce damage • • use of fuel only which is low in both sulphur and lead use of road-friendly air suspension wherever possible, reducing road damage and noise levels • recycling of old tyres and windscreens. The Group has recently established an Employee Consultative Group to facilitate improved communication with staff and enable employees to have the opportunity to have input into matters that affect them. The ECG is expected to meet at least 4 times in the coming year and provide a valuable opportunity to enhance the Group’s philosophy of openness and consultation. The Group is renewing its Investors in People accreditation during the coming The Board will continue to explore ways in which the Group can further reduce its impact on the environment in the future. The Group is also an active supporter of charities. For every consignment The Group is committed to minimising its environmental impact through targetsetting across different areas of the Group’s operations (eg the proportion of double-decked trailers in the fleet; average fuel consumption; the proportion of vehicles driven by personnel with minimum attained skill levels) and monitoring actual performance against those targets. In addition, the Group’s central departments audit the data supplied by the various operational locations in order to verify performance. The Group is in the process of implementing an Environmental Management System, covering all the Company’s activities, to formalise its processes further and encourage greater awareness and accountability towards environmental issues across the Group. It is anticipated that implementation of the EMS will be completed during the coming year. handled by the Group which is paid for using direct debit, the Group contributes 1p to the NSPCC and National Childrens’ Homes charities. year. year, with an average of 2.1 training days delivered per employee (2002: 0.5 training days). The principal areas covered were operations training and Health & Safety. Over the coming year, the main emphasis will be on management development and Performance Management. Health & Safety The Group has well-established Health & Safety systems which report accident rates to the Board on a monthly basis. Health & Safety training is a routine part of employee and management development and the Group’s commitment in this area has recently been recognised by the ROSPA Gold Award for Health & Safety. Report & Accounts 19 Remuneration Report The directors present the Remuneration Report for the year ended 31 March 2003. This report is unaudited except for those parts which are indicated otherwise. The members of the Remuneration Committee during the year were: Richard Saville (Chairman), Dennis Clark and Peter Kane. At their request, the Group’s Chief Executive, Paul Carvell, gave advice and assistance to the Remuneration Committee during the year. Remuneration policy The remuneration policy of the Group, including the policy for executive directors, is determined by the Remuneration Committee of the Board, the membership of which consists entirely of non-executive Board members. The remuneration policy for non-executive directors is determined by the Board. The objectives of the committee are: 1. 2. To ensure that directors and senior executives are fairly rewarded for their individual contributions to the Group’s overall performance. To ensure that the remuneration of the executive directors and senior executives of the Group is set by a committee of Board members who have no personal interest in the outcome of the decisions and who will give due regard to the interests of shareholders and to the financial and commercial health of the Group. The remuneration policy of the Group, in relation to both the current and previous years, is to provide competitive remuneration arrangements for executive directors and senior executives which are commensurate with those of other companies of a similar nature, size and standing and which reflect the Group’s business and financial objectives and the goals of Corporate Governance. Remuneration arrangements are addressed within the context of the Group’s current performance, its progress towards strategic objectives and individual executives’ personal performance. In developing remuneration arrangements, the Remuneration Committee (and, in regard to non-executive directors, the Board) refers to external market survey data. Elements of the remuneration package of executive directors Remuneration of executive directors comprises the following elements: Base salary Base salaries are determined in relation to job responsibilities and sustained level of individual performance, and are reviewed annually. Bonuses The company operates a bonus scheme for executive directors. The level of bonus payment is dependent upon the Group’s performance evaluated against both the prior year and annual budget, and also upon each director’s achievement of personal objectives, set out at the beginning of the year. In normal circumstances, the maximum payment is limited to 50% of annual salary and payments in respect of personal objectives may not exceed payments in respect of the Group’s financial performance. Benefits Health and sickness insurance schemes are provided for executive directors and include private health cover and permanent health insurance. Executive directors receive an annual car allowance and, during the year, the Company made contributions of 12.5 % of each individual director’s base salary into a defined contribution pension scheme. Share-based incentive schemes The company utilises both a Long Term Incentive Plan and Executive Share Option Schemes to provide longer term share-based incentives for senior executives. The schemes are designed to motivate and reward achievement of a combination of corporate financial targets and enhancement of shareholder value. Executive directors also participate in the Group’s Sharesave scheme. Specific details of the incentive schemes are shown later in this report. 20 Business Post Group plc Remuneration Report The targeted composition of each executive director’s remuneration is that 80% is non-performance related and that 20% is performance related. The remuneration of each non-executive director is 100% non-performance related except that in addition to his remuneration, Bill Cockburn has a long-term incentive arrangement whereby he is entitled to receive bonuses if the profit of UK Mail exceeds specified targets within a four year period of the commencement of trading. Directors’ service contracts It is Business Post Group plc’s policy that whilst there should not be a fixed duration in respect of directors’ service contracts, each contract contains notice periods of not more than one year and contains a clause whereby the contractual termination payments do not exceed the director’s remuneration for the previous calendar year. Non-executive directors are initially appointed for a three year term. All directors are required by the Company’s Articles of Association to submit themselves for re-election at least every three years. The details of the service contracts of those who have served as directors during the year are: Contract date Notice period Contractual termination payment Guy Buswell Paul Carvell Dennis Clark Bill Cockburn Peter Fitzwilliam Russell Hodgson Michael Kane Peter Kane Alec Ross Richard Saville 01.02.01 26.02.01 01.10.01 01.04.02 01.02.99 02.01.01 01.10.01 01.10.01 01.02.01 01.10.01 6 months 12 months 3 months 3 months 6 months 6 months 3 months 12 months 6 months 3 months 6 months remuneration* 12 months remuneration None None 6 months remuneration* 6 months remuneration* None None 6 months remuneration* None * In the event of termination following a change of control, executive directors are entitled to termination payments of 12 months remuneration. Performance Graph The graph below compares the total shareholder return for an investment in the ordinary shares of Business Post Group plc with the return for the same investment in the FTSE Support Services index over a five year period commencing on 1 April 1998. In the opinion of the directors, the FTSE Support Services index, of which the Company is a constituent, is currently the most appropriate index against which the total shareholder return of the Company should be measured because it is widely used by our investors, shareholders and management as a measure of performance. 140 140 100 80 60 40 20 1998 1999 2000 2001 2002 Source: DATASTREAM BUSINESS POST GP. - TOT RETURN IND FTSE SUPPORT SERVICES - TOT RETURN IND Report & Accounts 21 Remuneration Report Directors’ Remuneration (This part of the Remuneration Report is required to be audited) Salary & Fees £000 Neil Benson * Guy Buswell Paul Carvell Dennis Clark Bill Cockburn** Peter Fitzwilliam Russell Hodgson Michael Kane Peter Kane Alec Ross Richard Saville –– 110 210 24 90 125 125 22 60 102 24 892 * Neil Benson resigned on 24 July 2001 ** Bill Cockburn was appointed on 1 April 2002 and included in his remuneration are fees of £40,000 as a non-executive director and fees of £50,000 in relation to consultancy services offered to the Company’s business mail subsidiary, UK Mail. No director waived emoluments in respect of the year ended 31 March 2003. Pensions (This part of the Remuneration Report is audited information) The following amounts were contributed during the year to the directors’ personal pension schemes which are defined contribution schemes. 2003 £000 Guy Buswell Paul Carvell Peter Fitzwilliam Russell Hodgson Alec Ross 14 24 15 16 13 2002 £000 9 20 11 11 9 Benefits In kind £000 –– 12 13 –– –– 12 12 1 1 11 –– 62 Bonus £000 –– 9 32 –– –– 12 12 –– –– 9 –– 74 2003 Total £000 –– 131 255 24 90 149 149 23 61 122 24 1,028 2002 Total £000 20 168 312 22 –– 182 169 21 46 148 22 1,110 22 Business Post Group plc Remuneration Report Interests in share options (This part of the Remuneration Report is required to be audited) Details of the options held by each director are set out below: Directors’ Executive Share Options Earliest Date of Grant Exercise Date Expiry Date Exercise Price Number at 1 April 2002 Guy Buswell 15.12.00 05.12.01 31.05.02 15.12.03 05.12.04 31.05.05 15.12.07 05.12.11 31.05.12 173p 362.5p 418p 57,803 28,551 –– 86,354 Paul Carvell 08.06.01 08.06.01 13.07.01 31.05.02 08.06.04 08.06.04 01.12.05 31.05.05 08.06.08 08.06.11 13.07.11 31.05.12 226p 226p 204p 418p 163,716 13,274 294,117 –– 471,107 Peter Fitzwilliam 15.12.00 05.12.01 31.05.02 15.12.03 05.12.04 31.05.05 15.12.07 05.12.11 31.05.12 173p 362.5p 418p 62,312 31,274 –– 93,586 Russell Hodgson 12.01.01 12.01.01 05.12.01 31.05.02 12.01.04 12.01.04 05.12.04 31.05.05 12.01.08 12.01.11 05.12.11 31.05.12 226p 226p 362.5p 418p 30,973 13,274 30,344 –– 74,591 Alec Ross 15.12.00 05.12.01 31.05.02 15.12.03 05.12.04 31.05.05 15.12.07 05.12.11 31.05.12 173p 362.5p 418p 51,502 25,517 –– 77,019 –– –– 24,521 24,521 –– –– –– –– –– –– –– –– 51,502 25,517 24,521 101,540 –– –– –– 29,904 29,904 –– –– –– –– –– –– –– –– –– –– 30,973 13,274 30,344 29,904 104,495 –– –– 29,904 29,904 –– –– –– –– –– –– –– –– 62,312 31,274 29,904 123,490 –– –– –– 50,239 50,239 –– –– –– –– –– –– –– –– –– –– 163,716 13,274 294,117 50,239 521,346 –– –– 26,315 26,315 –– –– –– –– –– –– –– –– 57,803 28,551 26,315 112,669 Granted in year Exercised in year Lapsed in year Number at 31 March 2003 No other directors have been granted share options in the shares of the company or other group entities. None of the terms and conditions of the share options were varied during the year. All options were granted in respect of qualifying services. The options were granted at nil cost to the directors and were in respect of past performance. The performance criteria for all the above share options were consistent with the remuneration policy outlined earlier in this report. Report & Accounts 23 Remuneration Report The exercise of options granted prior to 31 March 2001 is subject to the condition that the growth in the Company’s earnings per share shall exceed the increase in the Index of retail prices from the date of grant. The exercise of options granted after March 2001 is subject to the condition that the growth in the Company’s earnings per share shall exceed the increase in the Index of retail prices from the date of grant by more than 3%. In addition, the exercise of share options granted to Paul Carvell in July 2001 is conditional upon the Company’s share price exceeding certain targets for a minimum of 100 consecutive days between 48 and 66 months from issue. Of the 294,117 options granted, 98,039 become exerciseable if the share price exceeds 600p, a further 98,039 become exerciseable if the share price exceeds 750p and a further 98,039 become exerciseable if the share price exceeds 900p. Sharesave scheme Earliest Date of Grant Exercise Date Expiry Date Exercise Price Number at 1 April 2002 Guy Buswell 09.01.01 Paul Carvell 03.01.02 Peter Fitzwilliam 09.01.01 Russell Hodgson 03.01.02 Alec Ross 03.01.02 01.02.05 01.08.05 290p 3,275 –– –– –– 3,275 01.02.05 01.08.05 290p 3,275 –– –– –– 3,275 01.02.04 01.08.04 170p 5,698 –– –– –– 5,698 01.02.05 01.08.05 290p 3,275 –– –– –– 3,275 01.02.04 01.08.04 170p 5,698 –– –– –– 5,698 Granted in year Exercised in year Lapsed in year Number at 31 March 2003 The market price of the Company’s shares at the end of the financial year was 354p and the range of market prices during the year was between 313.5p and 448.5p Interests in shares The interests of the directors in the ordinary shares of 10p each of the Company were as follows: 1 April 2002 Guy Buswell Paul Carvell Dennis Clark Peter Fitzwilliam Russell Hodgson Michael Kane Peter Kane Alec Ross Richard Saville 5,900 5,000 3,500 3,500 2,500 7,000,000 27,104,867 5,460 4,500 31 March 2003 2,900 6,000 3,500 4,500 4,800 7,000,000 20,438,201 5,960 4,500 All directors’ interests are beneficially held save for 3,333,334 ordinary shares which are held by beneficiaries who are persons connected with Peter Kane. There has been no change in the interests set out above between 31 March and 6 June 2003. 24 Business Post Group plc Remuneration Report Long Term Incentive Plan (This part of the Remuneration Report is required to be audited) Director’s interests in the Long Term Incentive Plan are as follows: Cycle Ending Guy Buswell Peter Fitzwilliam Alec Ross 31.03.03 31.03.03 31.03.03 Award date 02.06.00 02.06.00 02.06.00 At 1 April 2002 16,160 19,551 16,160 Granted in year –– –– –– Exercised in year –– –– –– Lapsed in year –– –– –– At 31 March 2003 16,160 19,551 16,160 No awards were made during the year. Awards granted in June 2000 may be exercised between June 2003 and June 2010. The extent to which the awards may be exercised is determined partly by reference to the Company’s earnings per share growth relative to inflation and partly by reference to the Company’s total shareholder return performance over the three years to 31 March 2003. Up to 60% of each award is determined by reference to earnings per share growth, with no amount exerciseable if compound growth over the period exceeds inflation by less than 2.5%. The remaining 40% of each award is determined by reference to total shareholder return performance relative to companies in the FT Support Services Sector, with no amount exerciseable if total return is below the median for that comparative group. Each award is exerciseable in full only if compound growth in earnings per share exceeds inflation by 17.5% or more and the Company’s total shareholder return is in the upper quartile for the comparative group. Based on the Company’s performance over the three years to 31 March 2003, 40% of the awards granted in June 2000 may be exercised. Although the Company’s performance is measured over a three year period, in order to enhance the retentive impact of the Long Term Incentive Plan, only 20% of an award may be exercised after three years, with the remaining 20% exerciseable four years after it is granted. In addition, on the exercise of awards under the Plan or options previously granted under any of the Company’s other share option schemes, directors are expected to retain 25% of the after-tax profit in the form of shares until they have acquired a shareholding equal to their basic salaries. In addition to the above, the Company has a separate long term incentive agreement with Bill Cockburn in relation to his consultancy services to UK Mail. Under this agreement, Mr. Cockburn will be entitled to receive bonuses if the profit of UK Mail exceeds specified targets within a four year period of the commencement of trading By order of the Board Richard Saville Chairman of the Remuneration Committee 6 June 2003 Report & Accounts 25 Directors’ Report The directors present their report on the audited financial statements for the year ended 31 March 2003. Principal Activity and Review of the Business The Group’s principal activity is the provision of parcel and express mail collection and delivery services. A review of the Group’s business during the year and its prospects for the future is set out in the Chairman’s Statement, Chief Executive’s Review and Financial Review. Results and Dividend The profit for the financial year of £11.2 million is reported in the Group Profit and Loss Account. An interim dividend of 5.6p per share was paid on 6 January 2003, and the directors recommend a final dividend of 11.3p per share payable on 24 July 2003 to shareholders on the register on 27 June 2003. This, when added to the interim dividend, will make a total of 16.9p for the year (2002 :16.0p). Corporate Governance A statement on corporate governance and the Group’s compliance with the Combined Code is set out in the Corporate Governance statement. Charitable Donations During the year, the Group made charitable donations of £63,783 (2002: £48,398). If Resolution 8 is approved by shareholders the directors will have authority to Directors Details of the directors are shown in the Directors and Advisers statement together with their biographical details and dates of appointment. In accordance with the Articles of Association, Dennis Clark, Peter Fitzwilliam and Peter Kane retire by rotation at the Annual General Meeting and, being eligible, offer themselves for re-election. Directors’ Interests The interests of the directors and their families as appearing in the register maintained under the provisions of section 325 of the Companies Act 1985 in the share capital of the Company on 31 March 2003 are set out in the Remuneration Report. allot up to 16,894,986 ordinary shares, representing 31.8% of the ordinary. shares currently in issue of which 2,836,844 (5.3% of the ordinary shares currently in issue) are currently reserved for issue under the Company’s share option schemes. The balance available for allotment is therefore 14,058,142 ordinary shares, representing 26.5% of the ordinary shares currently in issue. The directors have no present intention of exercising the authority except in connection with the issue of shares under the Company’s share option schemes or under the Business Post Group plc Franchise Share Option Scheme 2002. On 11 July 2002 resolutions were passed by the Company’s shareholders whereby the directors were given authority, under Section 80 of the Companies Act 1985, until the conclusion of the 2003 Annual General Meeting, to allot shares up to a maximum of the authorised but unissued share capital of the Company. The directors recommend by Resolution 8 to be proposed at the forthcoming Annual General Meeting that this authority should be renewed so that it applies until the conclusion of the next Annual General Meeting of the Company. Annual General Meeting - special business The notice of the Annual General Meeting to be held on 10 July 2003 may be found at the back of the Report and Accounts. In addition to the routine business of the meeting, the special business set out below will be transacted. Substantial Shareholders In addition to the interests of Peter Kane (38.5%) and Michael Kane (13.2%), as at 6 June 2003 the Company had been notified that Ms Joanne Bailey and Mr John Kane, the adult children of Peter Kane, are each beneficial holders of 3,333,333 shares, each representing 6.3% of the issued share capital of the Company. In addition, the Company had been notified that Fidelity International Limited and its direct and indirect subsidiaries are non-beneficial holders of 2,179,850 shares representing 4.1% of the issued share capital of the Company. 26 Business Post Group plc Directors’ Report In addition, the directors were given authority under Section 95 of the Companies Act 1985 until the conclusion of the 2003 Annual General Meeting to allot equity securities for cash, other than to existing shareholders in proportion to their holdings, up to an aggregate nominal amount equal to 5% of the issued ordinary share capital. The directors recommend by Resolution 9 to be proposed at the forthcoming Annual General Meeting that this authority should be renewed up to an aggregate nominal amount of £265,525 until the conclusion of the 2004 Annual General Meeting or 10 October 2004, whichever is the earlier. At the 2002 Annual General Meeting the Company was given authority under Article 9 of its Articles of Association and Section 166 of the Companies Act 1985 until the conclusion of the 2003 Annual General Meeting to make market purchases of up to 10% of the issued ordinary share capital for cancellation at a price of not less than 10 pence per ordinary share and not more than 105% of the average of the mid-market quotations for an ordinary share of the Company (as derived from the Daily Official List of the London Stock Exchange) for the five business days prior to the date of purchase. The directors recommend by Resolution 10 to be proposed at the forthcoming Annual General Meeting that this authority should be renewed until the conclusion of the 2004 Annual General Meeting. The directors did not exercise the Company’s power to purchase its own shares in the year ended 31 March 2003 and do not intend to exercise this power other than in circumstances where they consider this to be in the shareholders’ interests and where this would result in an increase in earnings per share. Employment Policy The Group’s policy is to maintain, as far as practicable, close consultations with employees on matters likely to affect their interests. The Company is an equal opportunities employer and holds an Investors in People certificate. The Group’s policy and practice is to encourage the recruitment and subsequent training, career development and promotion of disabled persons according to their aptitudes and abilities and the retention and retraining of employees who also become disabled during their employment. By order of the Board Peter Fitzwilliam Company Secretary 6 June 2003 Auditors Following the cessation of business by Arthur Andersen, the Group’s previous auditors, on 31 July 2002, the Board reviewed its external audit arrangements and appointed PricewaterhouseCoopers LLP to fill the vacancy. A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Group will be proposed at the Annual General Meeting. Environmental Responsibility and Health and Safety A statement on the steps taken to operate the business in pursuit of good environmental and health standards is set out in the Corporate Social Responsibility statement. Supplier Payment Policy The Group’s policy concerning the payment of its trade creditors is to follow the CBI’s Prompt Payers’ Code. The Group endeavours to agree standard terms of payment with its major suppliers at the commencement of business. Suppliers fulfiling the conditions of supply are paid in accordance with the agreed standard terms. Other suppliers are paid in accordance with contractual terms as agreed from time to time. The Company does not have trade creditors and accordingly no creditor days calculation is presented. Directors and Officers Liability Insurance The Company maintains insurance against certain liabilities which could arise from a negligent act or a breach of duty by its directors and officers in the discharge of their duties. Further information concerning the Group’s human resource management activities is set out in the Corporate Social Responsibility statement. Report & Accounts 27 Independent Auditors’ Report Independent auditors' report to the members of Business Post Group plc We have audited the financial statements which comprise the Consolidated Profit and Loss Account, the Consolidated and Company balance sheets, the Consolidated Cash Flow Statement and the related notes. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the Remuneration Report ("the auditable part") Basis of audit opinion Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the statement of directors' responsibilities. The directors are also responsible for preparing the Remuneration Report. Our responsibility is to audit the financial statements and the auditable part of the Remuneration Report in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, 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. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the auditable part of the Remuneration Report have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors' report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions is not disclosed. • We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Chairman’s Statement, the Chief Executive’s Review, the Financial Review, the Directors’ Report, the unaudited part of the Remuneration Report and the Corporate Governance statement. We review whether the Corporate Governance statement reflects the company's compliance with the seven provisions of the Combined Code PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Uxbridge 6 June 2003 • Opinion In our opinion: • the financial statements give a true and fair view of the state of affairs of the company and the group at 31st March, 2003 and of the profit and cash flows of the group for the year then ended; the financial statements have been properly prepared in accordance with the Companies Act 1985; and those parts of the Remuneration Report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the Remuneration Report are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the Remuneration Report. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the Group's corporate governance procedures or its risk and control procedures. 28 Business Post Group plc Consolidated Profit and Loss Account for the year ended 31 March 2003 2003 Notes Turnover Cost of sales Gross profit Administrative expenses Operating profit Interest receivable Profit on ordinary activities before taxation Taxation Profit for the financial year Dividends Retained profit transferred to reserves 11 20 9 3 2 £m 156.3 122.1 34.2 18.6 15.6 0.5 16.1 4.9 11.2 9.0 2.2 2002 £m 131.7 100.1 31.6 17.0 14.6 0.5 15.1 4.5 10.6 8.5 2.1 Earnings per share - basic - diluted Dividends per share 10 10 11 21.2p 21.2p 16.9p 20.0p 20.0p 16.0p The profit for the financial years presented above is derived from continuing activities and acquisitions (see note 15) and includes all recognised gains and losses for the year. The related notes numbered 1 to 25 form part of these financial statements. Report & Accounts 29 Consolidated Balance Sheet at 31 March 2003 2003 Notes Fixed assets Intangible assets Tangible assets Investments 12 13 14 1.7 30.4 0.1 32.2 Current assets Debtors due within one year Debtors due after one year Cash 16 16 29.8 5.1 1.6 36.5 Creditors Amounts falling due within one year Net current assets Total assets less current liabilities Provisions for liabilities and charges Net assets 18 17 21.9 14.6 46.8 1.0 45.8 17.8 14.8 44.4 1.0 43.4 23.0 2.9 6.7 32.6 –– 29.5 0.1 29.6 £m 2002 £m Capital and reserves Called up share capital Share premium account Profit and loss account Equity shareholders’ funds 19 20 20 21 5.3 9.9 30.6 45.8 5.3 9.7 28.4 43.4 The financial statements on pages 29 to 40 were approved by the board of directors on 6 June 2003 and were signed on its behalf by: Peter Kane Chairman Peter Fitzwilliam Finance Director The related notes numbered 1 to 25 form part of these financial statements. 30 Business Post Group plc Company Balance Sheet at 31 March 2003 2003 Notes Fixed asset investments In subsidiaries In own shares 14 14 2.7 0.1 2.8 –– 0.1 0.1 £m 2002 £m Current assets Debtors Cash 16 44.9 1.6 46.5 39.8 6.7 46.5 Creditors Amounts falling due within one year Net current assets Net assets 17 6.0 40.5 43.3 5.7 40.8 40.9 Capital and reserves Called up share capital Share premium account Profit and loss account Equity shareholders’ funds 19 20 20 5.3 9.9 28.1 43.3 5.3 9.7 25.9 40.9 The financial statements on pages 29 to 40 were approved by the board of directors on 6 June 2003 and were signed on its behalf by: Peter Kane Chairman Peter Fitzwilliam Finance Director The related notes numbered 1 to 25 form part of these financial statements. Report & Accounts 31 Consolidated Cash Flow Statement for the year ended 31 March 2003 2003 Notes £m 2003 £m 2002 £m 2002 £m Net cash inflow from operating activities Returns on investment and servicing of finance Interest received Taxation Capital expenditure and financial investment Purchase of tangible fixed assets Proceeds from sale of fixed assets Net cash outflow for capital expenditure and financial investment Acquisition Purchase of subsidiary undertakings Net cash acquired with subsidiary undertakings Net cash outflow for acquisitions Equity dividends paid Net cash (outflow)/inflow before financing Financing Issue of ordinary share capital (Decrease)/increase in cash 24 13.7 15.9 0.5 (4.9) 0.4 (4.3) (4.3) 0.2 (4.1) (3.6) 0.3 (3.3) 15 15 (2.7) 0.8 (1.9) (8.6) (5.3) –– –– –– (8.2) 0.5 0.2 25 (5.1) –– 0.5 The related notes numbered 1 to 25 form part of these financial statements. 32 Business Post Group plc Notes to the Financial Statements 1 Accounting Policies Accounting convention The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards. The principal accounting policies which have been applied consistently throughout the year and the preceding year are summarised below. Basis of consolidation The Group financial statements consolidate the financial statements of Business Post Group plc and its subsidiary companies for the year ended 31 March 2003. Advantage has been taken of Section 230 of the Companies Act 1985 not to include the Company’s own profit and loss account. The profit of the company for the year is £2.2m (2002: £2.1m). Turnover Turnover comprises the value of services provided and income earned in respect of franchises sold, net of value added tax. Deferred taxation Deferred tax is provided in full on timing differences between the recognition of gains and losses in the financial statements and their recognition in tax computations, except that a net deferred tax asset is recognised only when it can be regarded as more likely than not it will be recovered. Deferred tax is provided at current rates and is not discounted. Deferred tax assets and liabilities are offset where they relate to taxes levied by the same tax authority and are in the same taxable entity or group. Foreign exchange Transactions in foreign currencies are recorded in Sterling at the rate ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate ruling at the balance sheet date. All exchange differences are taken to profit and loss account as they arise. Pension costs Contributions to the Group sponsored employees’ personal pension plans and defined contribution schemes are charged to the profit and loss account in the year in which they accrue. Investments Fixed asset investments are shown at cost less provision for impairment. Shares held by the Employee Share Ownership Trust for the purposes of satisfying the Company’s commitments under the Long Term Incentive Plan are amortised over the life of the Plan. Depreciation Depreciation is calculated to write down the cost of tangible fixed assets to their estimated residual values over the following useful economic lives: • • Freehold buildings - fifty years on a straight line basis Short leasehold premises - the period of the lease on a straight line basis Motor vehicles - 10% to 33.3% annually on a reducing balance basis Plant and equipment - 25% annually on a reducing balance basis Computer equipment - 20% to 33% annually on a straight line basis. • • • Leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease except for non-operational properties, where full provision is made for future rental costs, less any rental income, up to the first break in the lease. Provision is also made for the cost of making good dilapidations where required under property leases. The benefits of rent free periods on property leases are spread evenly over the period of the lease up to the date of the next rent review. Goodwill Purchased goodwill, being the excess of the purchase consideration over the fair value of identifiable net assets of the newly acquired undertakings, is capitalised and written off evenly over its estimated useful economic life. Impairment The directors carry out a review of the carrying value of intangible and tangible fixed assets if an event has taken place that suggests that there could be an impairment in value. Where, in their opinion, there has been an impairment then the assets concerned are written down to their recoverable amount. The amount of the impairment is charged to the profit and loss account. Acquisitions and Disposals The results of businesses acquired or disposed of are consolidated from or to the effective dates of acquisition or disposal. On the acquisition of subsidiary undertakings or businesses, the acquisitions cost is allocated against the fair value of net assets acquired, after adjustments to bring accounting policies into line with those of the Group. Report & Accounts 33 Notes to the Financial Statements 2 Segmental Analysis of Results Turnover (£m) Classes of business Express International HomeServe UK Today Other Consolidated Turnover Cost of Sales Gross Profit Administrative Operating Profits Continuing Operations 2003 (£m) 123.8 18.2 7.6 4.2 2.2 156.0 (122.0) 34.0 (18.5) 15.5 Acquisitions 2003 (£m) –– –– –– 0.3 –– 0.3 (0.1) 0.2 (0.1) 0.1 Total 2003 (£m) 123.8 18.2 7.6 4.5 2.2 156.3 (122.1) 34.2 (18.6) 15.6 Total 2002 (£m) 108.4 12.1 6.9 1.7 2.6 131.7 (100.1) 31.6 (17.0) 14.6 The business does not allocate or apportion any costs or assets to any business segments. All turnover originates in one geographical area, being the United Kingdom. 3 Operating Profit 2003 £m Operating profit is stated after charging/(crediting): Depreciation Operating lease rentals payable - plant and machinery - other Operating lease rentals receivable Auditors’ remuneration - includes fees for audit and non audit services * This includes £10,000 (2002: £10,000) for the audit of the Company. 4 Employees 2003 Number The average number of persons (including executive directors) employed by the Group during the year was as follows: Administrative Operational 2002 Number 3.3 4.1 1.8 (0.9) 0.1* 2002 £m 3.6 3.5 1.4 (0.1) 0.1 139 1,468 1,597 126 1,326 1,452 5 Employment Costs 2003 £m The employment costs incurred by the Group, including executive directors, were: Wages and salaries Social security costs Other pension costs 2002 £m 24.1 2.0 0.5 27.0 21.2 2.0 0.4 23.6 6 Pension Costs The Group sponsors employees’ personal pension plans. Contributions were made by the Group at rates of between 2 per cent and 5 per cent of the eligible employees’ salaries in the year ended 31 March 2003. The directors’ pension arrangements are set out in the Remuneration Report. 34 Business Post Group plc Notes to the Financial Statements 7 Ultimate Controlling Party P Kane, a director of the Company, and members of his close family and certain family trusts the beneficiaries of which are persons connected with P Kane, control directly and indirectly 51.0% of the issued share capital of the Company. During the year, certain family trusts the beneficiaries of which are persons connected with P Kane transferred 3,333,333 shares to Ms J Bailey and Mr J Kane, the adult children of P Kane, each representing 6.3% of the issued share capital of the Company. In addition, his brother, M Kane, controls a further 13.2% of the issued share capital of the Company. Directors’ Remuneration Details of directors’ remuneration are set out in the Remuneration Report. Taxation 2003 £m The charge for taxation is based on the profit for the year and comprises: UK Corporation tax at 30% (2002: 30%) 4.9 2002 £m 4.5 8 9 The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows: 2003 £m 16.1 4.9 –– –– 4.9 2002 £m 15.1 4.5 –– –– 4.5 Profit on ordinary activities before tax Tax at 30% (2002: 30%) thereon Expenses not deductible for tax purposes Depreciation in excess of capital allowances 10 Earnings per share The basic earnings per share has been calculated by dividing the profit for the financial year of £11.2m (2002: £10.6m) by the weighted average number of ordinary shares in issue for the year ended 31 March 2003 of 53,048,564 (2002: 53,012,798). Diluted earnings per share have been calculated by adjusting the weighted average number of ordinary shares by 66,914 (2002: 28,403) for the effect of the exercise of share options, increasing the number of shares to 53,115,478 (2002: 53,041,201). 11 Dividends 2003 £m 3.0 6.0 9.0 169p 2002 £m 2.8 5.7 8.5 16.0p Interim of 5.6p (2002: 5.3p) paid on 6 January 2003 Final of 11.3p (2002: 10.7p) payable on 24 July 2003 Total dividends per share Dividends amounting to £5,915 (2002: £5,600) in respect of the company’s shares held by an employee share trust (note 14) have been deducted in arriving at the total dividends shown in the profit and loss accounts. 12 Intangible Fixed Assets - the Group Group Cost At 1 April 2002 Additions At 31 March 2003 Aggregate Amortisation At 1 April 2002 Charge for the year At 31 March 2003 Net book amount at 31 March 2003 –– –– –– 1.7 Goodwill £m –– 1.7 1.7 The goodwill arising on the acquisition of BXT Limited is being amortised on a straight line basis over 20 years. This period is the period over which the directors estimate that the value of the underlying business acquired is expected to exceed the value of the underlying assets. The Company had no intangible fixed assets at 31 March 2003 (2002: £Nil). Report & Accounts 35 Notes to the Financial Statements 13 Tangible Fixed Assets - the Group Freehold land and buildings £m Cost 1 April 2002 Additions Disposals 31 March 2003 Depreciation 1 April 2002 Disposals Charge for the year 31 March 2003 Net book value 31 March 2003 31 March 2002 1.7 –– 0.3 2.0 0.2 –– –– 0.2 2.9 (0.5) 0.5 2.9 10.6 (0.2) 2.5 12.9 15.4 (0.7) 3.3 18.0 Short leasehold premises £m Motor vehicles £m Plant and equipment £m Total £m 22.9 0.1 –– 23.0 0.4 0.3 –– 0.7 4.8 1.4 (0.7) 5.5 16.8 2.6 (0.2) 19.2 44.9 4.4 (0.9) 48.4 21.0 21.2 0.5 0.2 2.5 1.9 6.4 6.2 30.4 29.5 Included in freehold land and buildings is freehold land with a cost of £7.7m (2002: £7.7m) which is not depreciated. Included in short leasehold premises are short leasehold improvements at a cost of £0.7m (2002: £0.4m) and a net book value £0.5m (2002: £0.2m). The Company owned no tangible fixed assets at 31 March 2003 (2002: £Nil). 14 Investments Own shares £m Cost 1 April 2002 and 31 March 2003 Amortisation 1 April 2002 and 31 March 2003 Net book value 31 March 2002 and 31 March 2003 0.2 0.1 0.1 The Company established an Employee Share Ownership Trust on 4 August 1999, whose purpose is to hold shares in the Company for subsequent transfer to employees under the Long Term Incentive Plan. At 31 March 2003 the trust held 35,000 (2002: 35,000) shares with a nominal value of £3,500 (2002: £3,500) in the Company which have been conditionally gifted to employees under the Plan. The market value of these shares at 31 March 2003 was £0.1m (2002: £0.1m). Dividends are waived on all shares held by the trust until vested and the cost of the shares purchased are charged to the profit and loss account over the relevant performance periods. Costs of administration are dealt with in the profit and loss account. 36 Business Post Group plc Notes to the Financial Statements Investment in subsidiaries 2003 £m 2.7 2002 £m –– Investment in subsidiaries - at cost The company has the following principal wholly owned trading subsidiaries: Nature of business Business Post Ltd HomeServe Ltd UK Today Couriers Ltd BXT Limited Parcel and express mail collection and delivery services Home delivery services Same-day courier services Technical courier services Issued and fully paid share capital of £1 per share £1,000 £100 £100 £4,000 BXT Limited has a year end of 31 July. This has not yet been changed due to the short time which has elapsed since the date of acquisition. 15 Acquisitions On 28 February 2003 the Group purchased BXT Limited, a technical courier company, for a total consideration of £2.7 million.The consideration comprised of a cash payment of £2.5million, of which £0.4m is held in escrow by solicitors. This amount will be released on BXT achieving predefined commercial and financial objectives by 31 July 2003. In line with UKGAAP, the Group has adopted acquisition accounting in consolidating BXT Limited’s financial results. The total adjustments required to the book values of the assets and liabilities of the acquired company in order to present the net assets of it at fair value, in accordance with Group accounting principles, were £0.1m together with the resultant goodwill arising. From the date of acquisition to 31 March 2003, the acquisition contributed £0.3m to turnover, and £0.1m to profit before tax. The date of BXT’s financial year end is 31 July, and in its last financial year to 31 July 2002, BXT Limited made a profit after tax of £0.1m. For the period since that date to the date of acquisition, BXT Limited management accounts show: £m 2.5 0.3 0.3 0.1 0.2 Book Value £m 0.3 0.7 (0.5) (0.2) 0.8 1.1 Provisional Fair Value £m 0.2 0.7 (0.5) (0.2) 0.8 1.0 1.7 2.7 Turnover Operating profit Profit before taxation Taxation Profit attributable to shareholders BXT Limited acquisition Tangible fixed assets Debtors and prepayments Creditors and accruals Taxation Cash Net assets acquired Goodwill Total consideration Represented by: Professional fees Consideration settled by cash Revaluation £m (0.1) –– –– –– –– (0.1) 0.2 2.5 2.7 The book value of assets and liabilities have been taken from the management accounts of BXT Limited at 28 February 2003, the date of acquisition. Report & Accounts 37 Notes to the Financial Statements 16 Debtors Group 2003 £m 25.9 –– 6.0 1.6 1.4 34.9 2002 £m 21.1 –– 3.3 0.4 1.1 25.9 2003 £m –– 44.9 –– –– –– 44.9 Company 2002 £m –– 39.8 –– –– –– 39.8 Trade debtors Amounts due from subsidiary undertakings Amounts due from franchisees Other debtors Prepayments and accrued income Included in amounts due from franchisees are amounts recoverable after more than one year in respect of loans of £5.1m (2002: £2.9m) for the Group and £Nil for the Company (2002: £Nil). 17 Creditors: Amounts Falling Due Within One Year Group 2003 £m 5.0 2.9 2.2 4.4 –– 1.4 6.0 21.9 2002 £m 5.1 0.7 2.2 2.0 0.2 1.9 5.7 17.8 2003 £m –– –– –– –– –– –– 6.0 6.0 Company 2002 £m –– –– –– –– –– –– 5.7 5.7 Trade creditors Amounts owed to franchisees Corporation tax Other taxes and social security Other creditors Accruals and deferred income Dividends 18 Provisions for Liabilities and Charges - the Group Deferred taxation £m 0.7 –– –– 0.7 Property leases £m 0.3 (0.1) 0.1 0.3 Total £m 1.0 (0.1) 0.1 1.0 1 April 2002 Charged/(credited) to Profit and Loss Account Onerous leases Dilapidations 31 March 2003 The provision for property leases relates to dilapidations on properties under leases expiring between 1 and 10 years. Deferred taxation 2003 £m 0.7 –– 0.7 2003 £m Deferred taxation potential and provided in respect of: Accelerated capital allowances Other timing differences The Company had no provisions for liabilities and charges at 31 March 2003 (2002: £Nil). 0.8 (0.1) 0.7 2002 £m 0.7 –– 0.7 2002 £m 0.8 (0.1) 0.7 1 April 2002 Profit and loss account in respect of: Accelerated capital allowances 31 March 2003 38 Business Post Group plc Notes to the Financial Statements 19 Called up Share Capital 2003 £m (1) Authorised 70,000,000 ordinary shares of 10p each (2) Issued, allotted and fully paid 53,105,014 ordinary shares of 10p each (2002: 53,018,336) All of the shares issued during the year relate to the exercise of share options. (3) Share options Options granted as at 31 March 2003 under the Business Post Group plc share option schemes were as follows: Subscription Senior executive share option scheme I Senior executive share option scheme II Employee share option scheme Sharesave scheme New Executive 2001 share option scheme Franchisee Number 172,452 807,153 342,946 390,893 1,281,413 232,880* price per share 226p - 345p 173p - 345p 120p - 345p 170p - 442p 204p - 418p 380p Normal exercise date 26.06.03 to 08.06.11 26.06.03 to 08.06.11 02.07.96 to 15.12.10 01.02.03 to 01.08.06 31.07.04 to 31.05.12 12.07.05 to 12.07.12 7.0 2002 £m 7.0 5.3 5.3 *During the year, 232,880 share options were granted to long-standing franchisees of Business Post Ltd. 20 Reserves Profit and loss account 1 April 2002 Retained profit for the year 31 March 2003 Share premium account Group £m 28.4 2.2 30.6 Group 2003 £m 9.7 0.2 9.9 Group 2003 £m 2.2 0.2 2.4 43.4 45.8 Company £m 25.9 2.2 28.1 Company 2003 £m 9.7 0.2 9.9 1 April 2002 Premium on shares issued 31 March 2003 21 Reconciliation of Movements in Equity Shareholders’ Funds Retained profit for the year New share capital subscribed Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2002 £m 2.1 –– 2.1 41.3 43.4 Report & Accounts 39 Notes to the Financial Statements 22 Derivatives and other financial instruments 2003 Book Value £m 1.6 –– Fair Value £m 1.6 0.1 Book Value £m 6.7 –– 2002 Fair Value £m 6.7 –– Primary financial instrument: Cash at bank and in hand Derivative financial instrument: Fuel forward contract The fuel forward contract hedges against fluctuations in the purchase price of diesel. 23 Financial Commitments (1) Operating leases At 31 March the Group had the following annual commitments in respect of non-cancellable operating leases: Group 2003 Land and buildings £m 0.1 0.5 1.1 1.7 Other £m 0.3 3.0 –– 3.3 Land and buildings £m 0.2 0.3 0.9 1.4 Group 2002 Other £m 0.5 2.2 –– 2.7 Expiring within one year Expiring within two to five years Expiring after five years (2) Capital commitments 2003 £m –– Group 2002 £m –– Contracted for at 31 March 24 Reconciliation of Operating Profit to Operating Cash Flows Operating profit Depreciation (Increase)/decrease in debtors Increase in creditors Increase in net amounts due from franchisees Net cash inflow from operating activities 2003 £m 15.6 3.3 (6.3) 1.6 (0.5) 13.7 2002 £m 14.6 3.6 0.2 0.9 (3.4) 15.9 25 Analysis of Net Funds 2003 £m 6.7 (5.1) 1.6 2002 £m 6.2 0.5 6.7 1 April Increase/(decrease) in cash 31 March All cash was denominated in Sterling at 31 March 2003 except for £0.5m held in Euro current accounts. A commentary of the Group’s treasury policy is included in the Financial Review. 40 Business Post Group plc Five Year Summary of Results 2003 £m 2002 £m 2001 £m 2000 £m 1999 £m Turnover Cost of sales Gross profit Administrative expenses Operating profit Net interest receivable Profit on ordinary activities before taxation Taxation Profit for the financial year Dividends Retained profit transferred to reserves 156.3 122.1 34.2 18.6 15.6 0.5 16.1 4.9 11.2 9.0 2.2 131.7 100.1 31.6 17.0 14.6 0.5 15.1 4.5 10.6 8.5 2.1 123.7 95.1 28.6 16.3 12.3 0.4 12.7 3.8 8.9 8.0 0.9 114.3 84.8 29.5 13.3 16.2 0.4 16.6 5.0 11.6 8.0 3.6 107.4 77.1 30.3 13.3* 17.0 0.5 17.5 5.4 12.1 8.1 4.0 Earnings per share - basic 21.2p 20.0p 16.9p 21.9p 23.0p Dividends per share * 1999 includes exceptional costs of £0.8 million 16.9p 16.0p 15.1p 15.1p 15.1p The calculation of earnings per share for the five years ended 31 March 2003 is based on the following weighted numbers of shares in issue: 31 March 2003 31 March 2002 31 March 2001 31 March 2000 31 March 1999 53,048,564 53,012,798 53,007,905 52,903,803 52,597,219 Report & Accounts 41 Notice of Meeting Notice is hereby given that the Annual General Meeting of Business Post Group plc will be held at the London Capital Club, 15 Abchurch Lane, London EC4 at 12 noon on 10 July 2003 for the following purposes: Ordinary Business 1 To receive and consider the directors’ report and the accounts for the year ended 31 March 2003. 2 To declare a final dividend of 11.3p net per ordinary share for the year ended 31 March 2003, payable to shareholders on 24 July 2003 who are on the register on 27 June 2003. 3 To consider and approve the Remuneration Report of the Directors 4 To re-elect Dennis Clark as a director. 5 To re-elect Peter Fitzwilliam as a director. 6 To re-elect Peter Kane as a director. 7 To appoint the auditors, PricewaterhouseCoopers LLP, and to authorise the directors to determine the auditors’ remuneration. Resolution 1 Resolution 2 Resolution 3 Resolution 4 Resolution 5 Resolution 6 Resolution 7 Special Business To consider and, if thought fit, to pass the following resolutions which will be proposed as to Resolution 8 as an Ordinary Resolution and as to Resolutions 9 and 10 as Special Resolutions:8 That: 8.1 the directors be and they are hereby generally and unconditionally authorised for the purposes of section 80 of the Companies Act 1985 ("the Act") to exercise all the powers of the Company to allot relevant securities (within the meaning of section 80(2) of the Act) up to a maximum aggregate nominal amount of £1,689,498 provided that this authority shall (unless previously revoked or varied by the Company in general meeting) expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired; and 8.2 the authority hereby conferred upon the directors replaces the authority conferred upon the directors pursuant to the resolution passed by shareholders of the Company on 11 July 2002 provided that such replacement shall not have retrospective effect. Resolution 8 9 That: 9.1 the directors be and they are hereby empowered to allot equity securities (within the meaning of section 94 of the Companies Act 1985 (“the Act”)) wholly for cash pursuant to the authority conferred on the directors by resolution 8 contained in the notice of the Annual General Meeting of the Company of which this resolution forms part as if sub-section (1) of section 89 of the Act did not apply to any such allotment provided that this power shall be limited to: 9.1.1 the allotment of equity securities in connection with a rights issue open offer or otherwise in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective number of ordinary shares held by them and for the purposes of this resolution "rights issue" means an offer of equity securities open for acceptance for a period fixed by the directors to: (a) holders on the register on a fixed record date of ordinary shares in proportion to their respective holdings; and (b) holders on the register on a fixed record date of other equity securities to the extent expressly required or (if considered appropriate by the directors) permitted by the rights attached thereto; but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange or otherwise in any territory, and 9.1.2 the allotment (otherwise than pursuant to paragraph 9.1.1 above) of equity securities up to an aggregate nominal value of £265,525; and shall (unless previously revoked or varied by the Company in general meeting) expire on the earlier of 10 October 2004 or the conclusion of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or 9.2 agreement as if the power conferred hereby had not expired; and all authorities conferred under section 95 of the Companies Act 1985 prior to the date of this Annual General Meeting be and they are hereby revoked provided that such revocation shall not have retrospective effect. Resolution 9 42 Business Post Group plc Notice of Meeting 10. That pursuant to Article 9 of the Company’s Articles of Association and Section 166 of the Companies Act 1985, the Company be and is hereby authorised to make market purchases of ordinary shares of 10p each in the capital of the Company provided that: 10.1 the maximum number of ordinary shares hereby authorised to be purchased is 5,310,501; 10.2 the minimum price which may be paid for each ordinary share is 10 pence per ordinary share which amount shall be exclusive of expenses; 10.3 the maximum price which may be paid for each ordinary share is, in respect of an ordinary share contracted to be purchased on any day, an amount (exclusive of expenses) equal to 105% of the average of the mid-market quotations for an ordinary share of the Company as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which the ordinary share is contracted to be purchased; 10.4 the authority hereby conferred shall expire on the earlier of 10 October 2004 or the conclusion of the next Annual General Meeting of the Company after the date of passing this resolution, unless such authority is renewed prior to such time; and 10.5 the Company may conclude a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be exercised wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract as if the authority hereby conferred had not expired. Resolution 10 By order of the Board Peter Fitzwilliam Company Secretary 6 June 2003 Notes 1 A member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead of him. Such proxy or proxies need not be a member of the Company. 2 A form of proxy is provided. To be effective, a form of proxy must be completed, signed and (together with the original or a notarially certified copy of any power of attorney or other authority under which it is executed) lodged at the Company’s registered office at 464 Berkshire Avenue, Slough, Berkshire, SL1 4PL not later than 48 hours before the time of the meeting. Depositing a completed form of proxy will not preclude a member from attending the meeting and voting in person. 3 There will be available for inspection at the registered office of the Company on any weekday (except Saturday) during normal business hours from the date of this notice until the day of the Annual General Meeting and at the place of the Annual General Meeting for a period of 15 minutes prior to and during the Annual General Meeting copies of contracts of service between directors and the Company, and the register of directors’ interests in shares of the Company kept in accordance with section 325 of the Act. 4 The Company, pursuant to Regulation 41 of the Uncertified Securities Regulations 2001 specifies that only those shareholders registered in the register of members of the Company as at 4.30 pm on 8 July 2003 shall be entitled to attend and vote at the aforesaid general meeting in respect of the number of shares registered in their name at that time. Changes to entries on the relevant register of securities after 4.30 pm on 8 July 2003 shall be disregarded in determining the right of any person to attend or vote at the meeting. Report & Accounts 43 Financial Calendar 25 June 27 June 10 July 24 July November January 2003 2003 2003 2003 2003 2004 Shares become ex dividend Record date for dividend Annual General Meeting Payment of final dividend for the year ended 31 March 2003 Announcement of interim results and interim dividend for the year ending 31 March 2004 Payment of interim dividend for the year ending 31 March 2004 Head Offices Operations Express House, Wolseley Drive Heartlands, Birmingham B8 2SQ Tel: 0121 335 1000 Fax: 0121 335 1003 www.businesspost.biz Finance 464 Berkshire Avenue Slough, Berkshire SL1 4PL Tel: 01753 706000 Fax: 01753 706141 www.businesspost.biz Company Number 02800218 Designed and Produced by Business Post Marketing 44 Business Post Group plc