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Upwards momentum in net revenue growth, but cost headwinds during the period
Clipper Logistics has reported unaudited results for the six months ended 31 October 2018 (H1, FY19). Group revenue increased 14.1% to £227.9 million (six months ended 31 October 2017 (H1, FY18): £199.7 million). Group Profit Before Tax (PBT) is up 16.9% to £9.3 million (H1, FY18: £7.9 million).
The first half of the year saw revenue and profit growth in line with the Board's expectations. The Group's strategic positioning in e-fulfilment and returns management services delivered continuing strong organic growth in this business activity.
Group EBIT is 16.1% ahead at £10.7 million (H1, FY18: £9.2 million), as a result of strong performance in e-fulfilment and returns management in particular.
E-fulfilment and returns management services EBIT is up 17.1% to £6.2 million (H1, FY18: £5.3 million), including £(0.7) million impact from Clicklink (H1, FY18: £(0.7) million). Post period-end, Clicklink rate enhancements agreed with key customers and on-boarding of secured new customers will enhance profitability in the second half and beyond;
Non e-fulfilment logistics EBIT is up 16.4% to £7.3 million (H1, FY18: £6.3 million), including property-related advisory fees of £2.8 million (H1, FY18: £nil). EBIT excluding property-related advisory fees has reduced, due in particular to lower activity levels on a closed-book contract with a key retailer as it re-shapes and restructures its network, together with lower tobacco activity. Recent contract wins and increased tobacco activity are expected to deliver earnings growth in the second half.
Commercial vehicles EBIT was down 36.9% to £0.9 million (H1, FY18: £1.4 million) due to lower sales of new vehicles.
Compared to H1 FY18, revenues for H1 FY19 benefited from new customer wins including M&S returns, River Island, Edinburgh Woollen Mill and Crosswater in the UK and ASOS returns in Poland; and two new acquisitions, Tesam Distribution Limited and RepairTech Limited, the former having now been fully integrated into Logistics and the latter having been amalgamated with Servicecare to form the Technical Services division within the e-fulfilment and returns management operating segment. The results were boosted by partial period contribution from new operations which commenced during H1 FY19, including Brissi, Ginger Ray, Levi Strauss, Neon Sheep, Pretty Little Thing, Vestel in RepairTech and a new Servicecare offering for Amazon in Germany. There was also volume growth and extension of services on existing contracts with ASOS (in both the UK and Poland), Browns, Ireland's largest retailer, Morrisons, s.Oliver, Wilko and others, in part driven by particularly strong organic growth in the e-fulfilment market due to the continuing trend towards online retailing. The results also benefitted from a significant contribution from property-related advisory services. This is a revenue stream that Clipper will endeavour to continue and grow as the Group leverages its growing property portfolio.
These positive developments were partially offset by a decline in Commercial Vehicles. New vehicle sales have fallen, particularly in large tractor units, as a direct result of the manufacturer reducing its support to dealerships; organic decline in certain customers' trading in the non e-fulfilment segment as a result of the challenges posed by the migration of retail to online; the relocation of the women's knitwear range from Clipper’s M&S operation in Peterborough to another M&S network location; and Bench entering administration in H1 FY19. Clipper did not incur any bad debt on this.
Whilst net revenue growth continues to provide upwards momentum, there have been some cost headwinds during the period. There were some inefficiencies as a result of teething problems with new systems and processes on certain operations, which have now been resolved; and labour-related cost challenges experienced on certain closed book contracts, which are being addressed through rate increases with customers, and productivity improvement initiatives.
To support its continued growth, Clipper has increased its overhead investment in quality people and its back-office systems, offset by reductions in share-based payment accruals. Central logistics costs are in line with prior year at £2.5 million (H1, FY18: £2.5 million) and head office costs have decreased by £0.1 million to £1.2 million (H1, FY18: £1.3 million), together benefitting from a non-cash share based payment credit of £0.7 million, compared to a charge of £0.6 million in H1 FY18, a £1.3 million benefit.
Looking ahead, the Group continues to be well-placed to benefit from the continuing migration to online retailing and the increasing propensity for consumers to choose click-and-collect services when placing orders online. Recent contract wins, including Sports Direct and an extended relationship with Halfords, provide significant earnings momentum into the second half of the current financial year and beyond. Clipper is also excited about the future growth of its European operations, as the contracts with s.Oliver, ASOS and Westwing evolve. Clicklink is now well-positioned to enhance Group earnings, with new clients being introduced to the network, and enhanced rates having been agreed with key customers as the benefits of using the service become evident to retailers.