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Business Post Group (UKM)

  Print      Mail a friend       Annual reports

Tuesday 14 November, 2006

Business Post Group

Interim Results

Business Post Group PLC
14 November 2006



14 November 2006

                            BUSINESS POST GROUP PLC
                            INTERIM RESULTS 2006/07

                        6 months ended 30 September 2006

Highlights

 •  Group revenue up 15% to £153m (2005: £133m)

 •  UK Mail revenue up 157% to £37m (2005: £15m)

 •  Operating profit (before exceptional items) £3.5m (2005: £6.6m)*

 •  Profit before tax (before exceptional items) £3.2m (2005: £6.5m)*

 •  Exceptional charges of £1.5m (2005: £3.2m)

 •  Profit before tax £1.7m (2005: £3.3m)*

 •  Interim dividend 6.4p per share (2005: 6.4p)


*as restated for prior year adjustments.


Guy Buswell, Chief Executive said:

'Good progress has been made in addressing the operational issues in the Parcel
Services business which undermined our performance last year, and UK Mail has
continued to grow strongly, reinforcing its position as the leading competitor
to Royal Mail.

We have recently undertaken a review to establish the medium term strategic
agenda for the Group, which is to develop Business Post into the UK's leading
independent integrated postal group. We are creating a robust platform from
which this can be achieved.

Current trade remains in line with our expectations and the Board expects a much
improved second half.'

For further information, please contact:

Business Post Group plc
Guy Buswell (Group Chief Executive)                              0121 335 1111
Steven Glew (Group Finance Director)                             01753 706 070

Hogarth Partnership
John Olsen                                                       020 7357 9477
Fiona Noblet
Sarah Richardson


Introduction

As expected, the reported financial performance for the half is below last year.
The first half has, however, been a period of encouraging progress both
operationally and in terms of the Group's underlying financial performance.

We are continuing to address the operational issues in the Parcel Services
business which undermined our performance in the previous year. Good progress
has been made and, whilst the interim results reflect the continuing impact of
those issues in the early part of the year, we believe that they will be firmly
behind us by the year end.

At the same time, UK Mail continued to grow strongly, reinforcing its position
as the leading competitor to Royal Mail.

In addition, the Board has undertaken a comprehensive review to establish the
medium term strategic agenda for the Group. Our goal is to develop Business Post
into the UK's leading independent integrated postal group and to fully exploit
the growth dynamics of the markets in which we operate.

OPERATIONAL PERFORMANCE

Following the appointment of Guy Buswell as Chief Executive in December 2005 the
immediate priority was to stabilise the business, particularly within Parcel
Services. The key requirements were to:

  •  improve customer service;

  •  improve network operational efficiency; and

  •  address the under-performing franchise operations.


Customer Service

Our focus on the operations of our business has resulted in customer service
levels remaining consistently high. Delivery performance improved significantly
early in the year and has remained above 98%, which is amongst the highest in
our industry.

Network Operational efficiency

The main focus has been on our linehaul operations - the bulk overnight movement
of parcels. Through a review of capacity utilisation and the effective
management of operations we have achieved a good reduction in average linehaul
cost per consignment.

Franchise Operations

We continue to work with the remaining 18 successful franchises to ensure their
businesses continue to trade profitably and add value to our network.

We have made further progress in improving the former franchise network now
under Corporate ownership. We have transferred 14 to corporate ownership since
the beginning of the calendar year. Overall, these operations will make a
significant trading loss in the current year. We have reduced the run-rate of
these losses and expect to eliminate them by the start of the new financial
year.


Results

The interim results can be summarised as follows:

                                                6 months to 30 September
                                              2006        2005*
                                                                    Inc/(Dec)
                                                £m          £m              %
Group revenue                                153.0       133.0           15.0
                                             =======     =======       ========

Operating profit (before exceptional items)    3.5         6.6          (47.0)
Exceptional items                             (1.5)       (3.2)
                                             -------     -------       --------
Operating profit                               2.0         3.4          (41.2)
Net interest payable                          (0.3)       (0.1)
                                             -------     -------       --------
Profit before tax                              1.7         3.3          (48.5)
Tax                                           (0.5)       (0.8)
                                             -------     -------       --------
Profit after tax                               1.2         2.5          (52.0)
                                             =======     =======       ========

Basic earnings per share                       2.2p        4.7p


Revenue and operating profit (before exceptional items) are analysed as follows:

                            Revenue                     Operating Profit
                                                   (before exceptional items)
                    2006       2005     Inc/       2006 £m      2005*    Inc/
                      £m         £m     (Dec)                     £m     (Dec)
                                             %                               %

Parcel services     94.4       98.0       (3.7)        6.6      10.1     (34.7)
Mail services       37.5       14.6      156.8         2.6       1.1     136.4
Specialist services 21.1       20.4        3.4         1.2       1.5     (20.0)
                   -------     ------     ------     -------   -------   -------
          Total    153.0      133.0       15.0        10.4      12.7     (18.1)
                   =======     ======     ======

Central costs                                         (6.9)     (6.1)    (13.1)
                                                     -------   -------   -------
Total operating
profit (before
exceptional
items)                                                 3.5       6.6     (47.0)
                                                     =======   =======    ======

* restated


Parcel Services

Revenues in Parcel Services comprising the Group's business-to-business,
business-to-consumer, and international parcel delivery services, were down 3.7%
to £94.4m (2005: £98.0m). (When adjusted for the lower number of working days
compared to last year, comparable revenues are down 1.1%.) Parcel volumes
(measured as consignments per working day) were up 4% over the period.

International parcel revenues continued to show good levels of growth. In
September 2006 we commenced a major new contract with FedEx Express, which
extends our strategic relationship with them for a further five years on similar
commercial terms.

Parcel operating profits were down 34.7% to £6.6m (2005: £10.1m), reflecting the
continuing costs of addressing the underperforming franchise operations.

Nine franchises have been brought back into corporate ownership in the period,
bringing the total transferred since the beginning of the calendar year to 14.
As previously advised, these losses will impact our operating profit by some £3m
for the current financial year, of which £1.9m has been incurred in the first
half. In addition, as previously advised, we have incurred £0.8m in the period
on the transfer of franchises to corporate ownership which has been charged to
operating profit.

Whilst underlying margins within Parcel Services remained acceptable, we believe
there is scope to further enhance these over time.

UK Mail

Revenues in UK Mail (the leading competitor to Royal Mail) showed continued
strong growth, rising 157% to £37.5m (2005: £14.6m) and reflecting our further
success in attracting new business, particularly in the financial services
industry.

Operating profits were up 136% to £2.6m (2005: £1.1m).

Since inception of our mail business in May 2004, we have processed over one
billion mail items and in October alone we handled over 88 million mail items.
We have invested a further £2.1m in the installation of new sorting machines to
create capacity for future growth.

Specialist Services

Overall revenues in Specialist Services, comprising our nationwide palletised
goods delivery service (UK Pallets) and same-day courier activities (UK Today),
were up 3.4% to £21.1m (2005: £20.4m).

UK Pallets revenues were up 8.8% to £14.8m (2005: £13.6m), driven by
improvements in the quality of the pallet network, our management and our
marketing activities. We have incurred one-off costs of some £0.2m as we have
managed the changes to our pallet network. These costs are a key factor in the
operating profit for this business being down 25% on last year to £0.6m (2005:
£0.8m).

UK Today revenues were down 7.4% to £6.3m (2005: £6.8m), and operating profit
was down 14.3% to £0.6m (2005: £0.7m). The result reflects the discontinuation
of two major accounts at the end of last year, as we acted to improve the
quality of the overall customer base. We expect this temporary downturn to
reverse as we rebuild the revenues, in particular through leveraging
opportunities amongst customers elsewhere in the Group.

Exceptional item

The exceptional item of £1.5m relates to outstanding franchise debt, as
previously advised.

During the year ended 31 March 2006 a provision was made against outstanding
franchise debt. Recoverability of the amounts due from franchises, particularly
those poorly performing franchises being brought back into Corporate ownership,
has been less than anticipated resulting in the need to provide this further
amount against the franchise debt.

Interest

Net interest payable has increased to £0.3m (2005: £0.1m). This increase is
principally due to a reduction in loan interest recoverable from franchisees.

Cash Flow and Balance Sheet

The Group had a net cash outflow of £0.7m in the period, leading to net
borrowings at the end of the half year of £9.9m (2005: £12.2m). Cash inflow from
operating activities totalled £11m, including £4.7m of cash released from
working capital. Capital expenditure for the period was £5.5m (2005: £5.7m) of
which the cost of mail sortation machines was £2.1m.

Dividend

The Interim Dividend has been held at 6.4p (2005: 6.4p). The Interim Dividend
will be paid on 15 January 2007 to shareholders registered on 15 December 2006
with an ex-dividend date of 13 December 2006.

Prior Year Adjustment

As previously advised, a review of our balance sheet at 31 March 2006 has
identified a number of items relating to prior years. A prior year adjustment of
£1.2m (£1.5m before tax) has therefore been made to the brought-forward balance
sheet at 31 March 2006.

STRATEGIC AGENDA

Whilst we continued to focus on existing performance improvement initiatives the
Board has also undertaken a comprehensive review to establish the medium term
strategic agenda for the Group.

Our goal is to develop Business Post into the 'UK's leading integrated postal
group'.

In recent times, Business Post has evolved as a series of independent
businesses, with separate management and customer relationship management. Our
analysis has shown that a significantly more integrated approach will enhance
the effectiveness and competitiveness of our services and will allow us to make
the most of the business development opportunities that exist within the Group's
overall customer base.

Against this background, we have identified four key elements to our strategic
agenda:-

 •  An integrated management approach, particularly in customer relationship
    management - to fully leverage the competitive advantage created by our
    integrated physical infrastructure, and the growth opportunities within our
    group-wide customer base.

 •  The further customer orientation of our Parcel Services business -
    continually adapting to address the changing requirements of the market, in
    the fast-growing home delivery segment in particular.

 •  Building further on our leading position in the deregulating mail
    industry - through customer focus, product innovation, technology leadership
    and successful supplier relationships.

 •  The exploitation of new opportunities in specialist services - building
    on the capabilities within our existing niche offerings, introducing new
    services, and leveraging the wider customer relationships within the Group.


SUMMARY AND OUTLOOK

Through our management actions across the Group, our continued focus on the
growth opportunities in our markets and on the changing needs of our customers,
we are creating a robust platform from which our strategic ambitions can be
achieved.

Current trading remains in line with our expectations, and the Board expects a
much improved second half.


                         CONSOLIDATED INCOME STATEMENT
                   for the six months ended 30 September 2006

                          ------       ---------       ---------       ---------
                           Note       Unaudited       Unaudited       Unaudited
                                  Six months to   (as restated)   (as restated)
                                   30 September   Six months to         Year to
                                           2006    30 September        31 March
                                             £m            2005            2006
                                                             £m              £m
                          ------       ---------       ---------       ---------

Revenue                       2           153.0           133.0           278.2

Cost of sales                            (130.2)         (110.6)         (231.4)
                                       ---------       ---------       ---------

Gross profit                               22.8            22.4            46.8

Administrative expenses                   (20.8)          (19.0)          (41.7)
                          ------       ---------       ---------       ---------

Operating profit before
exceptional items                           3.5             6.6            11.8

Exceptional items             3            (1.5)           (3.2)           (6.7)
                          ------       ---------       ---------       ---------

Operating profit              2             2.0             3.4             5.1

Interest payable                           (0.4)           (0.3)           (0.8)

Interest receivable                         0.1             0.2             0.4
                                       ---------       ---------       ---------
Profit before taxation                      1.7             3.3             4.7

Taxation                                   (0.5)           (0.8)           (1.3)
                                       ---------       ---------       ---------
Profit for the period                       1.2             2.5             3.4
                                       =========       =========       =========

Earnings per share - basic    4             2.2p            4.7p            6.4p
                                       =========       =========       =========

Earnings per share - diluted  4             2.2p            4.6p            6.3p
                                       =========       =========       =========





                           CONSOLIDATED BALANCE SHEET
                              at 30 September 2006

                                    ----------       ----------       ----------
                                   Unaudited        Unaudited        Unaudited
                                30 September    (as restated)    (as restated)
                                        2006     30 September         31 March
                                          £m             2005             2006
                                                           £m               £m
                                    ----------       ----------       ----------
Assets
Non-current assets
Goodwill                                 9.5              9.5              9.5
Intangible assets                        1.2              0.8              0.7
Investment properties                    1.1              1.1              1.1
Property, plant and equipment           37.6             36.0             35.2
Trade and other receivables                -              0.5              0.4
Deferred tax assets                      0.1              0.4              0.1
                                    ----------       ----------       ----------
                                        49.5             48.3             47.0
                                    ----------       ----------       ----------

Current assets
Inventories                              0.2              0.2              0.2
Trade and other receivables             57.1             51.6             53.3
Current tax assets                       0.2                -              0.6
Cash and cash equivalents                  -              0.5                -
                                    ----------       ----------       ----------
                                        57.5             52.3             54.1
                                    ----------       ----------       ----------
Liabilities
Current liabilities
Borrowings                              (2.3)            (5.7)            (1.6)
Trade and other payables               (44.7)           (27.9)           (34.0)
Current tax liabilities                    -             (0.7)               -
Provisions                              (0.1)            (0.1)            (1.3)
                                    ----------       ----------       ----------
                                       (47.1)           (34.4)           (36.9)
                                    ----------       ----------       ----------

                                    ----------       ----------       ----------
Net current assets                      10.4             17.9             17.2
                                    ----------       ----------       ----------

Non-current liabilities
Borrowings                              (7.6)            (7.0)            (8.0)
Deferred tax liabilities                (1.3)            (1.5)            (1.3)
Provisions                              (0.5)            (0.3)            (0.3)
                                    ----------       ----------       ----------
                                        (9.4)            (8.8)            (9.6)
                                    ----------       ----------       ----------

                                    ----------       ----------       ----------
Net assets                              50.5             57.4             54.6
                                    ==========       ==========       ==========

Shareholders' equity
Ordinary shares                          5.5              5.4              5.5
Share premium                           14.7             14.5             14.6
Retained earnings                       30.3             37.5             34.5
                                    ----------       ----------       ----------
                                        50.5             57.4             54.6
                                    ==========       ==========       ==========



                        CONSOLIDATED CASH FLOW STATEMENT

                   for the six months ended 30 September 2006
                                     ----------       ---------       ---------
                                    Unaudited       Unaudited       Unaudited
                                Six months to   (as restated)   (as restated)
                                 30 September   Six months to         Year to
                                         2006    30 September        31 March
                                           £m            2005            2006
                                                           £m              £m
                                     ----------       ---------       ---------

Operating profit                          2.0             3.4             5.1
Exceptional items                         1.5             3.2             6.7
Depreciation and amortisation             2.8             2.5             5.3
Decrease/(increase) in working
capital                                   4.7            (2.0)            0.1
Net interest paid                        (0.3)           (0.1)           (0.4)
Tax paid                                    -            (2.6)           (3.6)
Other non cash items                      0.3             0.6            (0.4)
                                     ----------       ---------       ---------
Net cash inflow from operating
activities                               11.0             5.0            12.8

Capital expenditure                      (5.5)           (5.7)           (7.5)
                                     ----------       ---------       ---------
Net cash outflow from
investing activities                     (5.5)           (5.7)           (7.5)

Equity dividends paid                    (5.8)           (6.9)          (10.4)
Proceeds from re-financing
under finance leases                      0.6               -             1.2
Repayment of finance lease
liabilities                              (0.1)              -               -
Issue of share capital                    0.1             2.3             2.4
Purchase of Business Post
shares by the ESOT                          -            (1.3)           (1.3)
Repayment of borrowings                  (1.0)           (1.0)           (1.0)
                                     ----------       ---------       ---------
Net cash outflow from
financing activities                     (6.2)           (6.9)           (9.1)
                                     ----------       ---------       ---------
Net decrease in cash and cash
equivalents                              (0.7)           (7.6)           (3.8)
Cash and cash equivalents at
beginning of period                      (0.4)            3.4             3.4
                                     ----------       ---------       ---------
Cash and cash equivalents at
end of period                            (1.1)           (4.2)           (0.4)
                                     =========        =========       =========






           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                   for the six months ended 30 September 2006

                          ------      ----------      ----------      ----------
                          Note       Unaudited       Unaudited       Unaudited
                                 Six months to   (as restated)   (as restated)
                                  30 September   Six months to         Year to
                                          2006    30 September        31 March
                                            £m            2005            2006
                                                            £m              £m
                          ------      ----------      ----------      ----------
Opening shareholders'
equity as previously
reported                                  55.8            62.6            62.6
Prior year adjustment        5            (1.2)           (0.9)           (0.9)
                                      ----------      ----------      ----------
Opening shareholders'
equity as restated                        54.6            61.7            61.7
Dividends                                 (5.8)           (6.9)          (10.4)
Purchase of Business Post
shares by the ESOT                           -            (1.3)           (1.3)
Employees' share option
scheme:
- value of employee
services                                   0.4            (0.9)           (0.5)
- proceeds from shares
issued                                     0.1             2.3             2.5
Tax on items taken
directly                                     -               -            (0.8)
to equity
Profit for the period                      1.2             2.5             3.4
                                      ----------      ----------      ----------
Closing shareholders'
equity                                    50.5            57.4            54.6
                                      ==========      ==========      ==========



                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. General Information

This financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority.

The interim financial statements for the six months to 30 September 2006 have
been prepared using the accounting policies consistent with EU-adopted
International Financial Reporting Standards (IFRS) and IFRIC interpretations
which are the same as those set out in the Group's published accounts for the
year ended 31 March 2006.

These interim financial statements have been prepared under the historical cost
convention as modified by the revaluation of certain financial assets and
liabilities held for trading.

The Group has chosen not to adopt IAS 34, 'Interim Financial Statements', in
preparing the 2006 Interim Statement, and therefore, this interim financial
information is not in compliance with IFRS.

The financial information contained in this interim statement does not
constitute accounts as defined by Section 240 of the Companies Act 1985. The
interim report has neither been audited nor reviewed by the Group's auditors.

The interim report will be circulated to all shareholders and copies are
available on the Group's website or from the Company's head office: Express
House, 464 Berkshire Avenue, Slough, SL1 4PL.

The statutory accounts for 2006, which were prepared under IFRS, have been
delivered to the Registrar of Companies. The auditors' opinion on those accounts
was unqualified and did not contain a statement under section 237 of the
Companies Act 1985.


 2. Segmental analysis

                                       ---------       ---------       ---------
                                     Unaudited       Unaudited       Unaudited
                                 Six months to   (as restated)   (as restated)
                                  30 September   Six months to         Year to
                                          2006    30 September        31 March
                                            £m            2005            2006
                                                            £m              £m
                                       ---------       ---------       ---------

Revenue
Parcel Services                           94.4            97.7           195.8
Specialist Services                       21.1            20.4            41.6
Mail Services                             37.5            14.6            40.4
Other                                      0.0             0.3             0.4
                                       ---------       ---------       ---------
                                         153.0           133.0           278.2
                                       =========       =========       =========

Operating profit
Parcel Services - before                   6.6            10.1            17.5
                exceptional
                items
                - exceptional             (1.5)           (3.2)           (6.7)
                items                  ---------       ---------       ---------
                                           5.1             6.9            10.8
                                       =========       =========       =========

Specialist Services                        1.2             1.5             2.1
Mail Services                              2.6             1.1             3.2
Other                                     (6.9)           (6.1)          (11.0)
                                       ---------       ---------       ---------
                                           2.0             3.4             5.1
                                       =========       =========       =========


 3. Exceptional item

The exceptional item of £1.5m represents a provision against amounts owed by
certain franchises relating to prior years.

 4. Earnings per ordinary share

                                        ---------       ---------      ---------
                                        Unaudited       Unaudited      Unaudited 
                                    Six months to   Six months to        Year to 
                                     30 September    30 September       31 March
                                             2006            2005           2006
                                            pence           pence          pence
                                        per share       per share      per share               
                                        ---------       ---------      ---------

Earnings per share - basic                    2.2p            4.7p           6.4p
Earnings per share - diluted                  2.2p            4.6p           6.3p
Adjusted earnings per share - basic           4.2p            8.9p          15.0p
Adjusted earnings per share - diluted         4.1p            8.7p          14.8p

Earnings per share have been calculated by dividing the profit for the period
after taxation by 54,124,195 for the six months ended 30 September 2006, by
53,883,375 for the six months ended 30 September 2005 and by 53,962,493 for the
year ended 31 March 2006, representing the weighted average number of shares
issued for each period.

Diluted earnings per share have been calculated by adjusting the weighted
average number of shares for the effect of the exercise of share options and
LTIP awards. Adjustments of 425,104 for the six months ended 30 September 2006,
1,028,066 for the six months ended 30 September 2005 and 607,910 for the year
ended 31 March 2006 have been made, thereby increasing the number of shares to
54,549,299, 54,911,441 and 54,570,403 respectively.

Adjusted earnings per share have been calculated excluding the exceptional items
and the associated tax impact.

5. Prior year adjustment

The prior year adjustment relates to an understatement of accruals and the
overstatement of certain fixed assets. The effect of the adjustment on operating
profit and profit after tax is as follows;

              Unaudited                                Unaudited                
         (as previously               Unaudited   (as previously                Unaudited
              reported)            (as restated)       reported)            (as restated)      
          Six months to            Six months to         Year to                  Year to
           30 September             30 September        31 March                 31 March    
                   2005                     2005            2006                     2006
                  Total      Adj           Total           Total      Adj           Total   
                     £m       £m              £m              £m       £m              £m

Operating
profit              3.1      0.3             3.4             5.4     (0.3)            5.1
Profit
after tax           2.3      0.2             2.5             3.7     (0.3)            3.4
                ======== ========        ========       ========= ========        ========

Earnings
per                 4.3p     0.4p            4.7p            6.9p    (0.5p)           6.4p
share -
basic

The effect of the prior year restatement on net assets is as follows;
                                                                                    Total
                                                                                       £m

Net assets at 31 March 2005 as previously reported                                   62.7
Prior year adjustment                                                                (0.9)
                                                                                -----------
Net assets at 31 March 2005 as restated                                              61.8
                                                                                -----------

Net assets at 31 March 2006 as previously reported                                   55.8
Prior year adjustment                                                                (1.2)
                                                                                -----------
Net assets at 31 March 2006 as restated                                              54.6
                                                                                -----------

The reported net cash flows of the Group remain unchanged.




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