Business Post's new chief forced into fourth profits warning

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The Independent Online

The new chief executive of Business Post has started 2006 like his predecessor saw out 2005: with a profits warning that sent shares in the parcels delivery group sharply lower.

Six weeks into his tenure, Guy Buswell, who was promoted after the board ousted Paul Carvell, admitted the group would miss profit forecasts for the year to April.

It was the fourth time Business Post has warned on profits in 12 months and the second since November. Shares in the group slumped 14 per cent to 352p after it said profits would be 40 per cent lower than analysts had pencilled in at around £9m.

Part of the £5.8m shortfall reflected the £1m redundancy bill to clear out a tier of senior managers. The bulk of the cash went to Mr Carvell, who received £350,000 in compensation for losing his job. Mr Buswell said he fired a further eight managers to create an "inclusive operating board" with 10 members.

The group blamed the latest profits warning on the its failure to strengthen its margins by increasing selling prices and cutting costs, something the previous management had promised it would deliver.

Profit margins at the group that is expected to be on of the main beneficiaries of the recent decision to deregulate the postal market have collapsed, falling from a historic 10 per cent to zero. The group's parcel services division barely makes any money at all.

"We see our next financial year as our turnaround year. At some point we will get around to better margins and the year after we will get to normal margins," Mr Buswell said. Asked if he could reassure investors that the string of profits warnings had come to an end, he said: "No. But I would hope it will be the last."

The group said it was investing a further £1.5m in its franchise network, mainly on property costs to give it more control over its sites. This will increase its total franchise costs to £4.5m in the current year, it added.

Analysts at Seymour Pierce said: "Clearly the problems of using the franchise network to sustain rapid growth will take more than a few months to sort out." Analysts believe that only the prospect of a bid is providing a floor to the share price. Talk that Peter and Michael Kane, the brothers who dominate the board, have been approached to name a price for their 37 per cent majority stake has helped to support the stock. FedEx of the US and Dutch courier TNT have been tipped as possible buyers.