TIDMDX.
RNS Number : 1389U
DX (Group) PLC
20 October 2017
20 October 2017
AIM: DX.
DX (Group) plc
("DX" or "the Company" or "the Group")
Mail, parcels and logistics operator
Preliminary Results
for the year ended 30 June 2017
KEY POINTS
Financial
-- Revenue of GBP291.9m (2016: GBP287.9m)
-- EBITDA(1) of GBP7.2m (2016: GBP18.0m)
-- Adjusted(2) profit before tax and exceptional items of GBPnil
(2016: GBP11.5m)
-- Exceptional (non-recurring) items of GBP80.7m (2016: GBP92.1
million) - includes goodwill impairment of GBP72.4m (2016:
GBP88.4m) and other one-off items relating principally to property
dilapidation provisions, restructuring and professional costs, and
senior management departures
-- Reported loss before tax of GBP82.3m (2016: GBP82.7m)
-- Adjusted(2) EPS of 0.1p (2016: 4.9p) / Reported loss per
share of 40.3p (2016: LPS of 42.1p)
-- Debt (net of cash) at 30 June 2017 of GBP19.1m (2016:
GBP9.8m)
-- New financing agreement - see below
(1) Earnings before interest, depreciation, amortisation and
exceptional items
(2) Adjusted profit before tax and adjusted EPS exclude
amortisation of 'other intangibles' and exceptional items.
OPERATIONAL
-- Focus on addressing operational and financial
underperformance with a wide-ranging review of the Group's
operations
-- Attrition at DX Exchange declined year-on-year and was within
expected levels
-- Overall new business was 20% higher year-on-year
o major new contracts signed with Avon and IKEA(3)
-- Successfully retained contract with the Home Office
-- Industry wide shortage of CPC-qualified drivers remains a
pressure
o mitigating initiatives continue
(3) Additional IKEA revenue was won in the year and a major new
contract was signed in September 2017
POST PERIOD
-- New leadership team appointed - Ron Series as Chairman and
Lloyd Dunn as CEO
o Russell Black and Paul Goodson join as Non-executive
Directors
o all Board changes take effect from 19 October 2017
-- New financing provides for a fundraising of GBP24 million
(gross) via secured Loan Notes, with conversion rights, subject to
shareholder approval
o supported by investors, including Gatemore Capital and
Hargreave Hale, and the new leadership team
o net proceeds will be used to address a working capital
shortfall, capital expenditure and restructuring costs
-- Firm foundations are in place for the Group's turnaround
Bob Holt, outgoing Chairman of DX, commented:
"The year to 30 June 2017 and the first few months of the new
financial year have been an especially challenging period for the
Group, and DX's full year results, and current trading, reflect
this.
"However, the Company's prospects have been significantly
transformed, with the appointment today of a new leadership team,
headed by Ron Series as Chairman and Lloyd Dunn as CEO, and a major
new financing agreement. This agreement, which raises GBP24m of new
funds, is supported both by our major institutional shareholders,
including Gatemore Capital and Hargreave Hale, and by DX's new
Board Directors.
"I am confident that the new team will ably drive the turnaround
of the business, and a recovery in its financial performance."
Ron Series, newly-appointed Chairman of DX, said:
"I am delighted to be joining DX today as Chairman together with
Lloyd Dunn as CEO, and Russell Black and Paul Goodson as
Non-executive Directors.
"The new team has significant experience, both of the industry
and of business turnaround situations, and we are taking a positive
and determined approach to DX's turnaround. We will be undertaking
a thorough review of all the Company's operations to enable us to
make clear and sensible decisions about recovery initiatives and to
formulate a comprehensive new improvement plan.
"As might be expected, trading in the new financial year has
been affected by the challenges in the business. We anticipate
providing a further update on first half trading in early 2018, and
expect to be in a position to comment more fully on our turnaround
plans with the Company's interim results."
Enquiries
DX (Group) plc T: 020 3178 6378
(today)
Ron Series, Chairman
Lloyd Dunn, CEO
Zeus Capital (Financial Adviser T: 020 3829 5000
and Nominated Adviser to DX)
Nick How, Giles Balleny (Corporate
Finance)
Dominic King (Corporate Broking)
KTZ Communications T: 020 3178 6378
Katie Tzouliadis
Irene Bermont-Penn
Emma Pearson
CHAIRMAN'S STATEMENT
INTRODUCTION
The year under review to 30 June 2017 and the first few months
of the new financial year have been an especially challenging
period for the Group, as we have previously highlighted.
Since the beginning of the calendar year, the Group has been
addressing operational and financial underperformance, and also
initiated a wide-ranging review of the Group's operations. As well
as focusing on internal measures to strengthen the business, which
included the appointment of a number of senior executives, the
review also had an external element. As we announced at the end of
March with our interim results, we entered into discussions with
John Menzies plc ("John Menzies") about a potential combination of
DX with its Distribution division, reaching outline terms for a
possible agreement.
While these discussions were a primary focus, we continued to
move forward with operational initiatives and, after the financial
year end, in mid-July, we took the strategic decision to reorganise
the business to create two separate divisions, DX Express and DX
Freight, and, effectively no longer pursue the 'OneDX' strategy.
Simplifying the Group's structure like this allows us to both drive
service improvements and control costs more efficiently. At the
same time, Chief Executive, Petar Cvetkovic, and Finance Director,
Daljit Basi, stepped down from the Board, and we appointed an
interim Chief Financial Officer.
Negotiations with the Board of John Menzies ended in mid-August,
when the DX Board concluded that it would be unable to agree
suitable terms, and that it was in the best interest of
shareholders to proceed with business transformation on a
stand-alone basis. At that point, we also reported that the Group
was in advanced discussions with Ron Series, regarding his possible
appointment as Chairman, and with three other potential new
directors.
On 9 October, we were delighted to announce the appointment of
Lloyd Dunn as Chief Executive Officer, and I am very pleased to
confirm today that Lloyd is joining the Board, together with Ron
Series, who assumes the role as Chairman and Russell Black and Paul
Goodson who both join as Non-executive Directors. As planned,
Non-executive Director, Paul Murray, and I are retiring from the
Group, with Ian Gray remaining as a Non-executive Director. All
these Board changes take immediate effect. This is an outstanding
new leadership team for DX and they will be supported by our very
capable senior management team.
I am also delighted to announce today that, subject to
Shareholder approval, we have finalised the GBP24.0 million (gross)
fundraising, also reported on 9 October. The fundraising will be
effected via the issuance of secured Loan Notes, with conversion
rights, primarily to existing institutional investors and the
Group's new Directors. It places the Group in a very good position
to proceed with its stand-alone strategy. Further details on the
fundraising are provided in the Financial Review.
While navigating the last few months has not been easy for the
Group, I am leaving DX with a team that I am confident will build
strong foundations for DX's future growth and successful
turnaround.
FINANCIAL RESULTS
Revenue for the year to 30 June 2017 was GBP291.9 million (2016:
GBP287.9 million), with the 1.4% revenue increase largely
reflecting strong growth in logistics and a twelve month
contribution, of GBP4.7 million, from The Legal Post (Scotland)
Limited ("Legal Post") and First Post Limited ("First Post") (2016:
GBP0.5 million), acquired in May 2016, offset by a decline in other
revenues, principally DX Exchange.
As we previously reported, the Group's profitability for the
year was severely impacted by a number of factors. These included
pricing pressures and margin deterioration from an adverse change
in revenue mix, with higher margin operations underperforming. The
effect of this was magnified by the relatively fixed cost nature of
certain networks. The Group also experienced operational
difficulties relating to a major site integration programme. As a
result, earnings before interest, tax, depreciation, amortisation
and exceptional items ("EBITDA") reduced to GBP7.2 million (2016:
GBP18.0 million) and the underlying results from operating
activities decreased to GBP1.1 million (2016: GBP11.9 million)
after depreciation and amortisation of software and development
costs, which totalled GBP6.1 million (2016: GBP6.1 million).
The Group has incurred GBP80.7 million of exceptional items
(2016: GBP92.1 million), with the majority of this being an
impairment charge of GBP72.4 million, following a review of
goodwill, in accordance with the requirements of IAS 36,
'Impairment of assets' (2016: GBP88.4 million).
Adjusted earnings per share, which excludes amortisation of
intangibles and exceptional items, was 0.1p (2016: 4.9p). Reported
loss per share was 40.3p (2016: loss per share of 42.1p).
There was a cash outflow from operating activities in the year
of GBP2.0 million (2016: inflow of GBP10.7 million), and capital
expenditure amounted to GBP4.4 million (2016: GBP6.5 million). Debt
(net of cash) at 30 June 2017 was GBP19.1 million (2016: GBP9.8
million), reflecting the reduction in EBITDA as well as certain
exceptional items.
DIVIDS
As announced on 7 February 2017, the Board took the decision to
suspend the payment of dividends for the foreseeable future in
light of the Group's financial performance and increased level of
debt. This policy will be kept under review.
REVIEW OF OPERATIONS
The trading environment remained tough over the year, with a
number of our operations experiencing greater competitive
pressures. The shortage of CPC-qualified drivers for heavy goods
vehicles, highlighted previously, continues to be an industry-wide
problem. The mitigating steps we have taken, including the adoption
of new, smaller, 3.5 tonne custom-built vehicles, have helped to
ease this pressure, although we are continuing to look at
additional measures to tackle the problem.
One of the priorities over the year was DX Exchange, which
generates higher margin revenues. While this unique activity is in
a structural decline, nonetheless, it remains an important resource
for customers, and we renewed our focus on customer service
levels.
We have also reinforced DX Secure's market-leading credentials
as a highly secure delivery service, gaining the Cyber Essentials
Plus certification as well as retaining ISO27001 Information
Security certification. As previously reported, we were very
pleased to renew our contract with the Home Office for secure
delivery services and remain focused on growing this area of our
business.
Our logistics operation continued to grow strongly and is
well-placed for growth as a mid-sized operator in the sector. Our
ability to add additional services, together with our network of
distribution centres, enables us to differentiate our offering to
customers and gives us extra leverage.
The level of new business secured over the year was 20% up on
last year, which was encouraging. However, there were service
performance issues which held back some of our operations. Going
forward, with the strengthened team and renewed operational and
strategic focus, we expect to ensure consistency in service
performance as well as to continue to drive new business.
Parcels & Freight
Parcels & Freight comprises three core services: DX 1-Man,
specialising in irregular dimension and weight ("IDW") items; DX
Courier, providing next day parcel services mostly for the B2B
market; and DX 2-Man, offering a B2C home delivery solution for
heavier and bulkier items.
Revenues from parcels and freight activities were steady
year-on-year at GBP160.3 million (2016: GBP159.3 million) and
accounted for 55% of overall income. While there was an overall
good level of new business secured over the year, both from new and
existing customers, the operations experienced service issues and
some aggressive tactical market pricing, which resulted in the loss
of some business. Our DX 1-Man and DX Courier services, in
particular, were affected by this, and revenues across each
activity decreased slightly. However, DX 2-Man revenues grew
strongly, driven by additional business from existing customers and
strong new business flow through from the prior year, although this
market remains competitive.
We are continuing to focus on operational improvements and on
initiatives to improve the customer experience.
Mail & Packets
Mail & Packets encompasses our DX Exchange service, a B2B
mail service providing customers with extended collection and
delivery times, as well as DX Secure, which provides market-leading
levels of security and DX Mail, a low cost mail service offering
Downstream access for smaller volume users.
Mail & Packets generated revenue of GBP113.4 million (2016:
GBP113.8 million) and accounted for 39% of the Group's total
income. This result included a first full year's contribution from
Legal Post and First Post, although revenue of GBP4.7 million was
slightly behind expectations. The shortfall was largely in First
Post activities, which provides a Downstream access mail service in
Scotland. DX Exchange, which generates the largest and most
profitable revenue contribution across this segment, continued to
suffer from volume erosion. As previously reported, we expect
volumes to continue to decline, driven by the impact of
digitalisation. Nonetheless, the service remains valued by
customers across its core sectors of legal, financial, government
and healthcare.
The integration of the assets of Legal Post and First Post with
the Group's existing operations in Scotland was halted by an
Initial Enforcement Order served by the Competition & Markets
Authority ("CMA") in early July 2016, after the CMA instigated a
review into the acquisition. However, the businesses have since
been fully integrated following a lifting of this order in
September 2016.
Towards the end of November 2016, we were delighted to report
that DX had successfully retained its contract with the Home Office
covering secure delivery services for Her Majesty's Passport Office
("HMPO"), UK Visas and Immigration, National Crime Agency and
General Register Office. The contract is for an initial two years
and may be extended by up to two years. The contract helped to
underpin DX Secure's revenues for the year, which showed a small
increase compared to the prior year.
Logistics
DX Logistics offers a full outsourcing service to companies
seeking to outsource their vehicle fleet operations and can draw on
its wider operations to add further services.
Revenue from logistics services increased by 23% to GBP18.2
million (2016: GBP14.8 million) and accounted for 6% of the Group's
total revenues. The strong revenue growth reflected a number of
major contract wins, including with Avon UK, signed in February
2017, as well as continuing expansion of our successful
relationship with IKEA Limited ("IKEA"). At the end of September
2017, we announced that we had agreed a major new contract with
IKEA, which takes the total value of our work with this retailer to
approximately GBP19 million on an annualised basis.
We expect Logistics to continue to grow strongly as we
capitalise on DX's position between the larger third party
operators and the smaller players in the sector.
BUSINESS REORGANISATION
After the year end, in July 2017, we took the decision to
reorganise the business and created two divisions, DX Express and
DX Freight.
The move to create two distinct divisions brings a number of
advantages and also preserves future strategic options.
Importantly, it immediately enables us to manage costs more
flexibly and to drive new operational and sales initiatives more
easily. We expect this to directly benefit service levels and
customer experience.
Under the new structure, the DX Express division consists of DX
Exchange, DX Secure, DX Courier and DX Mail services while the
Group's DX Logistics, DX 1-Man and DX 2-Man services now form the
DX Freight division. Whilst the Annual Report and Accounts for the
year ended 30 June 2017 have not been prepared on a divisionalised
basis, the table below shows a pro forma EBITDA contribution
(unaudited) by division based on management estimates.
Express Freight plc Group
GBPm GBPm GBPm GBPm
-------- ------- ------- ------ -------
Revenue 170.5 121.4 - 291.9
Costs (143.0) (139.7) (2.0) (284.7)
EBITDA 27.5 (18.3) (2.0) 7.2
-------- ------- ------- ------ -------
It is recognised that the turnaround of the DX Freight division
is the key challenge facing the business. The experience that the
new Board brings will be instrumental in achieving this
turnaround.
As previously announced on 1 March 2017, we are not proceeding
with plans for a major new hub in Essington in the West Midlands
after our planning appeal and presentation of revised plans were
declined.
THE BOARD AND LEADERSHIP TEAM
On 9 October, we were very pleased to announce that Lloyd Dunn
had been appointed as Chief Executive Officer although in a
non-Board capacity for an interim period before joining the Board.
In addition, on that date we confirmed that I would be handing over
the role of Chairman to Ron Series, and that Russell Black and Paul
Goodson would be joining the Board as Non-executive Directors. As
previously mentioned, these Board changes are immediately
effective.
SUMMARY AND OUTLOOK
The year's results and trading at the beginning of the new
financial year have been affected by both external and internal
challenges. However, the Group's prospects have been significantly
transformed by the appointment of the new leadership team, headed
by Ron Series as Chairman and Lloyd Dunn as CEO, and by the major
new fundraising we have agreed. I am confident that the new team
will ably drive the turnaround of the business.
The new Board will be undertaking a thorough review of all the
Group's operations and expects to provide an update on first half
trading in early 2018 and to comment more fully on turnaround plans
and expectations with the publication of the Group's interim
results.
Bob holt
chairman
FINANCIAL REVIEW
Summary
Revenue of GBP291.9 million is 1.4% ahead of prior year's
result, largely due to strong growth in Logistics as well as a full
year's revenue contribution from Legal Post and First Post,
acquired in May 2016. These increases were partly offset by the
anticipated decline in DX Exchange revenue along with pricing
pressures impacting other services, in particular the 1-Man
service. A major new logistics contract was secured with Avon worth
in excess of GBP10 million per annum, with the contract coming
fully on stream at the end of March 2017. Its benefits will
therefore be more fully felt in the new financial year.
Underlying results from operating activities was GBP1.1 million
(2016: GBP11.9 million profit). This is stated before exceptional
items of GBP80.7 million, including a non-cash item of GBP74.4
million, mostly relating to the impairment of goodwill.
During the year, the Group paid dividends of GBP3.0 million
(2016: GBP10.0 million). Debt (net of cash) at 30 June 2017 was
GBP19.1 million (2016: GBP9.8 million). Operating cash flow was
GBP2.0 million outflow (2016: GBP10.7 million inflow) and capital
expenditure was GBP4.4 million (2016: GBP6.5 million).
2017 2017 2016
GBPm 2017 GBPm GBPm
Trading GBPm Exceptional Total Total
----------------------------- -------- ----------------- ------ ------
Revenue 291.9 - 291.9 287.9
----------------------------- -------- ----------------- ------ ------
Earnings before interest,
tax, depreciation and
amortisation ("EBITDA") 7.2 - 7.2 18.0
Depreciation (2.9) - (2.9) (3.0)
Amortisation of software
and development costs (3.2) - (3.2) (3.1)
----------------------------- -------- ----------------- ------ ------
Underlying results from
operating activities 1.1 - 1.1 11.9
Amortisation of other
intangible assets (1.6) - (1.6) (2.1)
Exceptional items - (80.7) (80.7) (92.1)
----------------------------- -------- ----------------- ------ ------
Reported results from
operating activities (0.5) (80.7) (81.2) (82.3)
Net finance costs (0.9) - (0.9) (0.5)
Share of results from
associate (0.2) - (0.2) 0.1
----------------------------- -------- ----------------- ------ ------
Loss before tax (1.6) (80.7) (82.3) (82.7)
----------------------------- -------- ----------------- ------ ------
Tax 0.2 1.0 1.2 (1.7)
----------------------------- -------- ----------------- ------ ------
Loss for the year (1.4) (79.7) (81.1) (84.4)
----------------------------- -------- ----------------- ------ ------
Foreign currency translation
differences - - - (0.1)
----------------------------- -------- ----------------- ------ ------
Total comprehensive expense
for the year (1.4) (79.7) (81.1) (84.5)
----------------------------- -------- ----------------- ------ ------
EPS - adjusted (pence)(1) 0.1 4.9
----------------------------- -------- ----------------- ------ ------
- basic (pence) (0.6) (39.7) (40.3) (42.1)
----------------------------- -------- ----------------- ------ ------
1 Adjusted EPS excludes amortisation of other intangible
assets
Revenue by Segment
A breakdown of Group revenue is shown below and a review of each
segment's performance is provided in the Chairman's Statement:
2017 2016
GBPm GBPm
-------------------- ----- -----
Parcels and freight 160.3 159.3
Mail and packets 113.4 113.8
Logistics 18.2 14.8
-------------------- ----- -----
Revenue 291.9 287.9
-------------------- ----- -----
EBITDA
Earnings before interest, tax, depreciation, amortisation and
exceptional items ("EBITDA") for the year to 30 June 2017 was
GBP7.2 million (2016: GBP18.0 million).
As previously noted, a number of the operations experienced
significant competitive pressures.
A significant cost pressure for DX is from driver resourcing
issues. This continues to drive a two-fold impact on DX's cost
base, with more expensive agency drivers being used, as well as
smaller, less efficient transit vans in place of goods vehicles. In
addition, further costs of GBP0.6 million were incurred relating to
the co-location of five sites into one at Swanley, which had a
knock-on impact on service levels.
The decline in DX Exchange revenues materially impacted
profitability, since the service is supported by a largely fixed
cost base. While we continue to expect volume erosion, reflecting
the continuing trend towards digitalisation, we are seeking ways to
minimise it and to improve service.
Profit was also adversely affected by pricing pressures,
aggressive tactical market pricing from competitors, and some
operations experiencing service issues.
Exceptional items
Exceptional items for the year totalled GBP80.7 million (2016:
GBP92.1 million) and are summarised below.
The largest exceptional charge comprised a non-cash item of
GBP72.4 million which followed a review of goodwill, in accordance
with the requirements of IAS 36 'Impairment of assets'. The
'value-in-use' method used in the review supported a carrying value
of GBP30.0 million and therefore an impairment of GBP72.4 million
was recognised. See note 6 to the financial statements for further
details.
Impairment charges also include a GBP2.0 million impairment
charge to the Group's non-controlling interest in associate Gnewt
Cargo Limited ("Gnewt"). This followed a period of challenging
trading for Gnewt and subsequent to the year end on 31 August 2017
the Group disposed of its interest in Gnewt for GBP1.
Restructuring, professional costs and other, includes
transaction fees relating to the proposed reverse takeover of the
Distribution division of John Menzies plc and refinancing
costs.
Property dilapidation provisions have been made for dilapidation
costs in respect of leasehold properties that we have vacated or
where there is a possible exit within two years.
Costs incurred as a result of senior management departures
amounted to GBP1.0 million.
As previously reported, in July 2016 the Competition &
Markets Authority ("CMA") commenced a review of the acquisitions of
Legal Post and First Post, serving an Initial Enforcement Order at
the same time, which halted our integration process. This order was
revoked in September allowing us to recommence the integration
process. The Group incurred GBP0.6m of costs in the period as a
result of this process.
One-off additional auto enrolment costs are in relation to the
underpayment of contributions in the financial years 30 June 2014
to 30 June 2016.
Prior to the end of the financial year, the Group was notified
of a VAT refund arising from a long standing dispute with HMRC in
respect of VAT paid on professional fees. Amounts of GBP1.0 million
were received subsequent to the year end.
2017 2016
GBPm GBPm
----------------------------- ----- -----
Impairment charges 74.4 88.4
Property dilapidations
provision 2.8 -
Restructuring, professional
costs and other 2.6 -
Senior management departures 1.0 -
CMA investigation 0.6 -
Additional auto enrolment
costs 0.3 -
VAT refund (1.0) -
Planning and acquisition
costs on proposed hub - 3.3
Share-based payments
accelerated charge - 0.4
----------------------------- ----- -----
Exceptional items (net) 80.7 92.1
----------------------------- ----- -----
Cash flow
2017 2016
GBPm GBPm
------------------------ ----- -----
Net cash profit (note
10) 0.7 14.6
Net change in working
capital (0.7) 0.1
Interest paid (0.6) (0.4)
Tax paid (1.4) (3.6)
------------------------ ----- -----
Net cash from operating
activities (2.0) 10.7
------------------------ ----- -----
Cash outflow from operating activities (after tax) of GBP2.0
million resulted from lower EBITDA and exceptional items. However,
DX maintained its excellent performance on debtor days which at 28
days remains very strong. There was a GBP0.7 million worsening in
working capital where an increase in payables was offset by an
increase in receivables and a reduction in deferred income as the
DX Exchange subscriptions declined.
Net assets
Net assets decreased by GBP84.1 million largely as a result of
the recognition of the impairment charge against goodwill reflected
in non-current assets.
2017 2016
GBPm GBPm
------------------------------ ------ ------
Non-current assets 52.1 133.9
Current assets excluding
cash 48.6 39.1
Net cash 2.0 4.3
Invoice discounting facility (15.3) -
Revolving credit facility - (6.5)
Current liabilities excluding
debt (59.7) (60.1)
Non-current liabilities
excluding debt (6.3) (3.2)
Term loan (5.8) (7.6)
Deferred loan issue costs 0.4 0.2
------------------------------ ------ ------
Net assets 16.0 100.1
------------------------------ ------ ------
debt (net of cash)
Debt (net of cash) at 30 June 2017 stood at GBP19.1 million
(2016: GBP9.8 million) as a result of lower EBITDA and exceptional
items.
During the year, refinancing terms to 30 September 2018 were
agreed, including replacing the revolving credit facility with an
invoice discounting facility. The Group expects to extend the term
of the invoice discounting facility in the new financial year.
As previously reported, subsequent to the year end, on 29
September 2017 the Group completed a sale and leaseback of five
freehold properties for an aggregate cash consideration of GBP4.5
million. At the same time, the Group entered into an unsecured loan
agreement with GCM Partners II, a fund controlled by DX's major
shareholder Gatemore Capital Management LLP ("Gatemore"), for a
loan to the Group of GBP2.0 million. The proceeds from the sales
and loan were used to repay the GBP5.8 million bank term loan in
full.
In addition, as announced on 9 October 2017 the Group reached an
agreement on legally binding heads of terms for a GBP24.0 million
(gross) fundraising through the issue of secured Loan Notes, with
conditional conversion rights, principally to existing
institutional investors and the Group's new Directors.
The Loan Notes are being issued in two tranches: Tranche 1 of
GBP16.3 million will be issued to Gatemore and the new Directors
today. The issue of Tranche 2 of GBP7.7 million is conditional upon
agreeing an inter-creditor agree,emt with the bank, which the
Directors are confident of receiving, and on DX shareholder
approval of the conditional conversion rights, which will be sought
as soon as reasonably practicable and, in any case, by no later
than 31 December 2017.
The Loan Notes will have a term of 36 months. Subject to
shareholder approval, the conditional conversion rights attaching
to the Loan Notes will be crystallised and the convertible Loan
Notes would be capable of conversion into ordinary shares of DX, at
10 pence per new DX share.
The aggregate issue of Loan Notes includes the refinancing of
the GBP2.0 million unsecured term loan from Gatemore as noted
above. The net funds raised will be used to meet the Group's near
term material funding requirements, addressing a working capital
shortfall, as well as capital expenditure and restructuring costs.
The Loan Notes are not to be used for acquisitions or any other
material capital item.
2017 2016
GBPm GBPm
----------------------------- ----- -----
Term loan 5.8 7.6
Cash and cash equivalents (2.0) (4.3)
Invoice discounting facility 15.3 -
Revolving credit facility - 6.5
----------------------------- ----- -----
Debt (net of cash) 19.1 9.8
----------------------------- ----- -----
Capital expenditure
We have continued to invest in the business although, in light
of reduced profits, capital expenditure was lower than in the prior
year.
2017 2016
GBPm GBPm
---------------------------- ----- -----
IT hardware and development
costs 1.3 3.2
Property costs 1.4 1.6
Operations 0.7 1.2
Service development 1.0 0.5
---------------------------- ----- -----
Total capex 4.4 6.5
---------------------------- ----- -----
Taxation
The effective tax rate for the year (on the results before
exceptional items) was less than the prevailing 19.75% (pro rata)
UK corporation tax rate. This reflects the impact of capital
allowances from the long term capital investment programme and is
because some of the profit derived in the year is from DX's
operations in Ireland and therefore bears a lower rate of
corporation tax.
Earnings per share
Adjusted earnings per share, which excludes amortisation of
intangibles and exceptional items, was 0.1p (2016: 4.9p).
2017 2016
GBPm GBPm
---------------------------------------- ----- -----
Results from operating
activities before exceptional
items (0.5) 9.8
Add back/(deduct):
* Amortisation of intangibles 1.6 2.1
* Finance costs (0.9) (0.5)
* Share of results from associates (0.2) 0.1
---------------------------------------- ----- -----
Adjusted profit before
tax - 11.5
---------------------------------------- ----- -----
Tax charge 0.2 (1.7)
---------------------------------------- ----- -----
Adjusted profit after
tax 0.2 9.8
---------------------------------------- ----- -----
Adjusted earnings per
share (pence) 0.1 4.9
---------------------------------------- ----- -----
Basic earnings per share
(pence) (0.6) 3.8
---------------------------------------- ----- -----
Dividends
In light of current trading and, in line with our statement in
our trading update on 7 February 2017, the Board will not be
recommending the payment of dividends for the foreseeable future.
However, this policy will be kept under review as appropriate.
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
2017 2016
Trading Exceptional items Total Total
Notes GBPm GBPm GBPm GBPm
Revenue 291.9 - 291.9 287.9
Operating costs 5 (292.4) (80.7) (373.1) (370.2)
---------- ------------------ -------- --------
Results from operating activities (0.5) (80.7) (81.2) (82.3)
---------- ------------------ -------- --------
Analysis of results from operating activities
Earnings before interest, tax, depreciation and
amortisation ("EBITDA") 7.2 - 7.2 18.0
Depreciation (2.9) - (2.9) (3.0)
Amortisation of software and development costs (3.2) - (3.2) (3.1)
Amortisation of other intangibles (1.6) - (1.6) (2.1)
Impairment 6 - (74.4) (74.4) (88.4)
Other exceptional items (income) 6 - 1.0 1.0 -
Other exceptional items (expenses) 6 - (7.3) (7.3) (3.7)
---------- ------------------ -------- --------
Results from operating activities (0.5) (80.7) (81.2) (82.3)
---------- ------------------ -------- --------
Net finance costs (0.9) - (0.9) (0.5)
Share of results from associates (0.2) - (0.2) 0.1
---------- ------------------ -------- --------
Loss before tax (1.6) (80.7) (82.3) (82.7)
---------- ------------------ -------- --------
Tax expense 7 0.2 1.0 1.2 (1.7)
---------- ------------------ -------- --------
Loss for the year (1.4) (79.7) (81.1) (84.4)
---------- ------------------ -------- --------
Other comprehensive expense not subsequently reclassified
Foreign currency translation differences - - - (0.1)
Total comprehensive expense for the year (1.4) (79.7) (81.1) (84.5)
---------- ------------------ -------- --------
Earnings/(loss) per share (pence):
Basic (and diluted) 8 (0.6) (39.7) (40.3) (42.1)
Adjusted earnings per share 0.1 4.9
---------- ------------------ -------- --------
Adjusted earnings per share is calculated after excluding
exceptional items and the amortisation of other intangibles.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
2017 2016
Notes GBPm GBPm
Non-current assets
Property, plant and equipment 12.0 17.3
Intangible assets and goodwill 38.7 113.3
Investments in associates - 2.0
Deferred tax assets 1.4 1.3
Total non-current assets 52.1 133.9
------ ------
Current assets
Assets held for sale 3.5 -
Trade and other receivables 43.3 39.1
Current tax receivable 1.8 -
Cash and cash equivalents 2.0 4.3
------ ------
Total current assets 50.6 43.4
------ ------
Total assets 102.7 177.3
------ ------
Equity
Share capital 2.0 2.0
Share premium - -
Translation reserve - -
Retained earnings 14.0 98.1
------ ------
Total equity 16.0 100.1
------ ------
Non-current liabilities
Loans and borrowings 9 4.8 6.2
Provisions 6.3 3.2
Total non-current liabilities 11.1 9.4
------ ------
Current liabilities
Current tax liabilities - 0.7
Loans and borrowings 9 15.9 7.7
Trade and other payables 40.1 36.6
Deferred income 19.6 22.8
------ ------
Total current liabilities 75.6 67.8
------ ------
Total liabilities 86.7 77.2
------ ------
Total equity and liabilities 102.7 177.3
------ ------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Share capital Share premium Translation reserve Retained earnings Total
GBPm GBPm GBPm GBPm GBPm
At 1 July 2015 2.0 181.4 0.1 10.7 194.2
Loss for the year - - - (84.4) (84.4)
Other comprehensive expense - - (0.1) - (0.1)
Share premium cancellation - (181.4) - 181.4 -
Dividends - - - (10.0) (10.0)
Share-based payment transactions - - - 0.4 0.4
At 30 June 2016 2.0 - - 98.1 100.1
-------------- -------------- -------------------- ------------------ -------
Loss for the year - - - (81.1) (81.1)
Other comprehensive expense - - - - -
Dividends - - - (3.0) (3.0)
At 30 June 2017 2.0 - - 14.0 16.0
-------------- -------------- -------------------- ------------------ -------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2017
2017 2016
Notes GBPm GBPm
Cash generated from operations 10 - 14.7
------ -------
- Interest paid (0.6) (0.4)
- Tax paid (1.4) (3.6)
------ -------
Net cash (used in)/generated from operating activities (2.0) 10.7
------ -------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.9 0.8
Acquisition of property, plant and equipment (1.8) (2.3)
Software and development expenditure (2.6) (4.2)
Acquisitions of Legal Post and First Post (0.3) (3.1)
Net cash used in investing activities (3.8) (8.8)
------ -------
Net (decrease)/increase in cash before financing activities (5.8) 1.9
------ -------
Cash flows from financing activities
Movement on revolving credit facility (6.5) 6.5
Movement on invoice discounting facility 15.3 -
Repayment of bank borrowings (1.8) (1.2)
Equity dividends paid (3.0) (10.0)
Loan issue costs paid (0.5) -
------ -------
Net cash generated from/(used in) financing activities 3.5 (4.7)
------ -------
Net decrease in cash and cash equivalents (2.3) (2.8)
Cash and cash equivalents at beginning of period 4.3 7.0
Effect of exchange rate fluctuations on cash held - 0.1
------ -------
Cash and cash equivalents at end of period 2.0 4.3
------ -------
NOTES TO THE FINANCIAL INFORMATION
1 Basis of preparation
This unaudited preliminary consolidated financial information
has been prepared in accordance with the International Financial
Reporting Standards (IFRS) and the IFRS Interpretation Committee
(IFRIC) interpretations as endorsed by the European Union (EU). The
accounting policies applied in these condensed financial statements
are the same as those set out in the annual report and accounts for
the year ended 30 June 2016.
The company's statutory accounts have been audited for the year
ended 30(th) June 2017 and though the audit opinion was unmodified
the auditor drew attention to a material uncertainty related to
going concern. This material uncertainty was in relation to the
need for shareholder approval of the convertibility of the tranche
2 Loan Notes (see Chairman's statement) as a condition precedent
for their issue.
This preliminary consolidated financial information does not
constitute statutory consolidated financial statements for the year
ended 30 June 2017 as defined in section 434 of the Companies Act
2006. The 2017 financial statements for DX (Group) plc have yet to
be filed with the registrar of companies, they will be filed with
the Registrar in due course.
2 Principal accounting policies
The accounting policies applied in these condensed financial
statements are the same as those set out in the annual report and
accounts for the year ended 30 June 2016.
Critical accounting estimates and assumptions
The Group makes certain estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial information are considered to relate to:
(a) Carrying value of goodwill: The Group tests annually whether
goodwill has suffered any impairment. In assessing impairment, the
majority of goodwill has been allocated to the cash-generating unit
which is the Group. The remaining goodwill of GBP2.4m relates to
the Legal Post and First Post acquisitions, which is allocated to a
separate CGU. The recoverable amount of the goodwill is measured as
the higher of its fair value less costs to sell and value in use.
Value in use calculations require the estimation of future cash
flows to be derived from the cash-generating units and to select an
appropriate discount rate in order to calculate their present
value. The estimation of the timing and value of underlying
projected cash flows and the selection of appropriate discount
rates involves management judgement. Subsequent changes to these
estimates or judgements may impact the carrying value of the
goodwill.
(b) Provisions: Provisions are recognised when the Group has a
present legal or constructive obligation as a result of a past
event, it is probable that an outflow of resources will be required
to settle the obligation and the amount can be reliably estimated.
The amount of the provision requires estimation of the extent and
timing of probable outflows of resources and to select an
appropriate discount rate in order to calculate their present
value. The estimation of the timing and value of underlying
projected outflows of resources and the selection of appropriate
discount rates involves management judgement. These judgements are
informed with reference to contractual obligations, historical data
and specifically identified factors.
3 New standards and interpretations not yet adopted
The following new standards and amendments are in issue but not
yet effective and have not been adopted early by the Group:
-- IFRS 9 'Financial instruments' - new standard for financial instruments accounting
-- IFRS 15 'Revenue from contracts with customers' - new standard for revenue recognition
-- IFRS 16 'Leases' - new standard for lease accounting
The Group is currently assessing the impact of adopting IFRS 16,
which will result in the recognition of assets and liabilities
relating to leases which are currently being accounted for as
operating leases, to have a material impact on the consolidated
results and financial position of the Group. The implementation of
the other new standards is not expected to have a material
impact:
-- under IFRS 15 revenue is recognised when the customer obtains
control of goods and services transferred by the Group and the
related performance obligations have been satisfied. The Group does
not expect IFRS 15 to have a significant impact on the total
revenue recognised for customer contracts
-- IFRS 9 will result in changes to the measurement and
disclosure of financial instruments, and introduces a new expected
loss impairment model. The Group does not currently expect adoption
of the standard to have a significant impact on its consolidated
results or financial position, but it will result in increased
disclosures.
4 Segment information
2017 2016
GBPm GBPm
Revenue:
Parcels and freight 160.3 159.3
Mail and packets 113.4 113.8
Logistics 18.2 14.8
------- -------
Total revenue 291.9 287.9
------- -------
Earnings before interest, tax, depreciation and amortisation ("EBITDA") 7.2 18.0
Depreciation and amortisation (7.7) (8.2)
Exceptional items (80.7) (92.1)
------- -------
Results from operating activities (81.2) (82.3)
Finance charges (net) (0.9) (0.5)
Share of profits from associates (0.2) 0.1
------- -------
Loss before tax (82.3) (82.7)
------- -------
The Board of Directors is considered to be the chief operating
decision maker ("the CODM"). Due to the integrated nature of the
operations the CODM considers there to be only one operating unit
and reviews profitability, assets and liabilities on a Group basis.
The CODM also considers there to be only one material geographical
segment, being the United Kingdom and the Republic of Ireland.
5 Operating costs
2017 2016
GBPm GBPm
Other external charges 190.8 181.7
Employee benefit expense 79.7 74.7
Depreciation of property, plant and equipment 2.9 3.0
Amortisation of intangible assets 4.8 5.2
Profit on sale of property, plant and equipment (0.2) (0.1)
Operating lease rentals 21.1 17.4
Other operating income (0.4) (0.1)
Impairment charges 74.4 88.4
------ ------
Total operating costs 373.1 370.2
------ ------
Trading activities 292.4 278.1
Exceptional items (see note 6) 80.7 92.1
------ ------
Total operating costs 373.1 370.2
------ ------
6 Exceptional items
2017 2016
GBPm GBPm
Impairment charges 74.4 88.4
Property dilapidations provision 2.8 -
Restructuring, professional costs and other 2.6 -
Senior management departures 1.0 -
CMA investigation 0.6 -
Additional auto enrolment costs 0.3 -
VAT refund (1.0) -
Planning and acquisition costs on proposed hub - 3.3
Share-based payments accelerated charge - 0.4
80.7 92.1
------ -----
Impairment charges
During the year management reviewed the carrying value of the
Group's goodwill and concluded that an impairment charge of GBP72.4
million was required (2016: GBP88.4 million). This charge followed
the continued challenging industry conditions and decline in
profits since the prior year which suggested a further indicator of
impairment. The recoverable amount of goodwill (in both the current
and prior year) is calculated with reference to its value in use
based on future cash flow projections.
In addition, management concluded that the Group's
non-controlling interest in associate Gnewt Cargo Limited ("Gnewt")
should be fully impaired following a period of challenging trading
for Gnewt, representing a GBP2.0 million impairment charge.
Subsequent to the year end on 31 August 2017 the Group disposed of
its interest in Gnewt for GBP1.
Property dilapidations provision
Provisions have been made for dilapidation costs in respect of
leasehold properties that we have vacated or where there is a
possible exit within two years. This represents a change in
methodology of the provision estimate from a general provision in
the prior year to specific provisions in the current year.
Restructuring, professional costs and other
Professional fees of GBP1.1 million were incurred relating to
the proposed reverse takeover of John Menzies Distribution Limited
("MDL") that was announced on 31 March 2017. As previously reported
on 14 August 2017 discussions with MDL were terminated.
Costs of GBP1.3 million were incurred as a result of
restructuring and professional costs relating to the refinancing of
the Group.
GBP0.2 million of other costs were incurred in respect of
external legal fees.
Senior management departures
Amounts of GBP1.0 million represent payments to former members
of the Executive Team following their departure from the Group.
CMA investigation
As previously reported, in July 2016 the Competition &
Markets Authority ("CMA") commenced a review of the acquisitions of
Legal Post and First Post, serving an Initial Enforcement Order at
the same time, which halted our integration process. This order was
revoked in September allowing us to recommence the integration
process. The Group incurred GBP0.6m of costs in the period as a
result of this process.
Additional auto enrolment costs
Additional auto enrolment costs are in relation to the
underpayment of contributions in the financial years 30 June 2014
to 30 June 2016.
VAT refund
Prior to the end of the financial year the Group was notified of
a VAT refund arising from a long standing dispute with HMRC in
respect of VAT paid on professional fees. Amounts of GBP1.0 million
were received subsequent to the year end.
Planning and acquisition costs on proposed hub
This GBP3.3 million cost in the prior year included planning and
acquisition costs relating to a proposed new hub which were
expensed following the decision by the local authority not to
approve and grant planning permission.
Share-based payments accelerated charge
This non-cash charge relating to share-based payment
arrangements followed the cancellation of the Company Share Option
Plan ("CSOP") and Share purchase plan (equity-settled) ("SAYE") in
the prior year. The GBP0.4 million accelerated charge represented
the remaining amount of the total grant-date fair value of the
share-based payment awards granted to employees not previously
recognised as an expense, with a corresponding amount added back in
equity. The Value Creation Plan ("VCP") as referred to in the
Governance Report remains in operation.
7 Income tax expense
(a) Analysis of charge in year
2017 2016
GBPm GBPm
Current tax
United Kingdom corporation tax
Current year 1.5 (1.5)
Adjustments in respect of prior periods 0.1 0.2
------ ------
Total United Kingdom corporation tax 1.6 (1.3)
Overseas taxation (0.5) (0.4)
------ ------
Total current tax 1.1 (1.7)
------ ------
Deferred tax
Current year 0.5 (0.1)
Adjustments in respect of prior periods (0.3) 0.3
Changes in tax rates (0.1) (0.2)
------ ------
Total deferred tax 0.1 -
------ ------
Tax expense 1.2 (1.7)
------ ------
Trading 0.2 (1.7)
Exceptional items 1.0 -
------ ------
Tax expense 1.2 (1.7)
------ ------
(b) Factors affecting the tax expense for year
The tax expense for the year differs from the expected amount
that would arise using the weighted average rate of corporation tax
in the UK for each year. The differences are explained below:
2017 2016
GBPm GBPm
Loss before tax (82.3) (82.7)
------- -------
Loss before tax at the standard rate of UK corporation tax of 19.75% (2016: 20.0%) 16.3 16.5
Factors affecting charge for year:
Impairment charges not deductible for tax purposes (14.7) (17.7)
Other exceptional charges not deductible for tax purposes (0.2) (0.7)
Adjustments in respect of prior years (0.2) 0.1
Effect of different tax rates (0.1) (0.2)
Other 0.1 0.3
-------
Tax expense 1.2 (1.7)
------- -------
(c) Factors that may affect future tax charges
The UK corporation tax rate is 19% with effect from 1 April
2017. A reduction to 17% (effective 1 April 2020) was substantively
enacted on 6 September 2016. This will reduce the Group's future
current tax charge accordingly. The deferred tax asset at 30 June
2017 has been calculated based on these rates.
8 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2017 is
based on the loss after exceptional items for the year of GBP81.1
million (2016: GBP84.4 million loss) and average number of shares
in issue of 200.5 million (2016: 200.5 million).
9 Loans and borrowings
Third party
2017 2016
GBPm GBPm
Non-current liabilities
Bank loans 5.2 6.4
Deferred loan issue costs (0.4) (0.2)
------ ------
4.8 6.2
------ ------
Current liabilities
Invoice discounting facility 15.3 -
Revolving credit facility - 6.5
Bank loans 0.6 1.2
15.9 7.7
------ ------
10 Cash generated from operating activities
2017 2016
GBPm GBPm
Cash flows from operating activities
Loss for the period (81.1) (84.4)
Adjustments for:
- Impairment charges 74.4 88.4
- Depreciation 2.9 3.0
- Amortisation of intangible assets 4.8 5.2
- Finance costs 0.9 0.5
- Tax (credit)/expense (1.2) 1.7
- Gain on sale of property, plant and equipment (0.2) (0.1)
- Share of profits from associates 0.2 (0.1)
- Equity-settled share-based payment transactions - 0.4
Net cash profit 0.7 14.6
------- -------
Changes in:
- Trade and other receivables (4.1) (0.3)
- Trade and other payables 3.6 1.8
- Deferred income (3.2) (1.2)
- Provisions 3.0 (0.2)
------- -------
Net change in working capital (0.7) 0.1
------- -------
Cash generated from operations - 14.7
------- -------
11 Financial instruments
Short term debtors and creditors have been excluded from the
following disclosures.
(a) Interest rate profile
The table below shows the levels of fixed and floating third
party financial liabilities.
Bank term loan
2017 2016
GBPm GBPm
Fixed rate - -
Floating rate 5.8 7.6
Total 5.8 7.6
----- -----
(b) Fair values
Financial instruments utilised by the Group during the years
ended 30 June 2016 and 30 June 2017, together with information
regarding the methods and assumptions used to calculate fair
values, can be summarised as follows:
Current assets and liabilities
Financial instruments included within current assets and
liabilities (excluding cash and borrowings) are generally
short-term in nature and accordingly their fair values approximate
to their book values.
Borrowings and cash
The carrying values of cash and short-term borrowings
approximate to their fair values because of the short-term maturity
of these instruments.
The financial instruments held by the Group do not, either
individually or as a class, create potentially significant exposure
to the market, credit, liquidity or cash flow interest rate
risk.
Fair values of financial assets and liabilities
Carrying amount and fair value
The fair value of all financial assets and liabilities is
considered to be equal to the carrying values of these items due to
their short-term nature. Cash is held with counterparties with a
Moody's credit rating of A3 and Ba1.
GBP0.5 million (2016: GBP1.0 million) of net financial assets
and liabilities at the statement of financial position date were
denominated in euros. All other net financial assets and
liabilities were denominated in sterling. A 10% strengthening of
sterling against the euro at 30 June 2017 would have reduced equity
and profit by GBP0.1 million (2016: GBP0.1 million).
A 1% increase or reduction in the interest rate applicable to
the Group's borrowings would have had a GBP0.2 million (2016:
GBP0.1 million) impact on the profit for the year.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's receivables from customers and investment securities. The
maximum exposure to credit risk is the amount of the receivables
balance.
The ageing of trade receivables at the statement of financial
position date that were not impaired was as follows:
2017 2016
GBPm GBPm
Neither past due nor impaired 21.4 19.6
Past due 1 - 30 days 1.3 1.3
Past due 31 - 90 days 0.7 0.3
Past due more than 90 days 0.1 -
----- -----
23.5 21.2
----- -----
The movement in the provision for bad and doubtful debts in
respect of trade and other receivables was as follows:
Individual provisions Collective provisions
GBPm GBPm
At 1 July 2015 - 0.5
Increase in provision - 0.1
---------------------- ----------------------
At 30 June 2016 - 0.6
---------------------- ----------------------
At 1 July 2016 - 0.6
Increase in provision 0.3 -
Decrease in provision - (0.4)
---------------------- ----------------------
At 30 June 2017 0.3 0.2
---------------------- ----------------------
The Group considers that the amounts for which no provision has
been made, are still collectable in full, based on historic payment
behaviour and extensive analysis of customer credit risk, including
underlying customers' credit ratings, when available.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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