Smaller Companies: Business Post can deliver the profits in parcels

INVESTORS will tomorrow be able to take a breather from the recent batch of bio-technology flotations when Business Post issues the full details behind its stock market launch.

There is no need to consult your nearest bio-chemist to understand this company, which operates in the tangible, if none too exciting, world of parcels and express mail.

Business Post has performed well during the recession, making money while other competitors, such as the Post Office-owned Parcel Force, have run up mountainous losses.

The company comes complete with a long track record. It was established in 1971 by Peter Kane, chairman, as a same-day courier service in London.

A chance to expand the business, originally based in an attic in Harrow, came in the mid- 1970s when TNT muscled in and opened up the UK market, offering what the Post Office could not - reliability.

Business Post was hired by TNT for deliveries in London. Then in 1981 it began operating its own overnight parcels service and using sub-contractors for deliveries outside the capital.

By 1984 it had opened a depot in Reading and two years later it established another in Birmingham.

That triangular network, taking in the M1 and M4 motorways, was only in place for a year before the company pounced on the collapse of UPS (Holdings). From the receiver it bought five depots in Colnbrook, Bristol, Leicester, Darlington and Glasgow, and also opened another in Manchester.

UPS also formed the catalyst for changing the business formula - out went sub-contractors and in came franchisees.

Today, the company is the seventh largest in its field with only a 2 per cent market share. At the top of the tree is Parcel Force, with 32 per cent of a market reckoned to generate pounds 1.6bn of turnover annually.

But size does not necessarily carry any advantage. In 1990/91 Parcel Force lost a thumping pounds 131m and had to pull out all the stops to cut the deficit to pounds 24m a year later. Parcel Force has now been merged with the profitable Datapost business.

In contrast, Business Post's profits have marched ahead over the last five years - a period made tougher by a 20 per cent contraction in the overnight market and a 40 per cent slump in the non-urgent 48 and 72-hour markets.

More recent difficulties in the parcels and express mail markets were evident in the results from NFC, which surprised the City by announcing a pounds 6m half-year loss at Lynx - the fourth biggest operator in the UK with a 5 per cent market share.

Earlier this month Business Post announced taxable profits of pounds 4.2m for the year to 31 March, up from pounds 2.9m the year before and pounds 1.3m in 1990/91.

The pay-off has come from a policy of targeting small and medium-sized customers rather than locking into a few big corporate clients, many of which have made savage cuts in their expenditure over the last two years.

Copies of the prospectus can be obtained from Baring Brothers, the company's merchant bank, or UBS, its stockbrokers.

What a pity it is being targeted at institutions only. Although the company's business is high-volume, its placing will result in another scantly traded share.