DX Group posts statutory loss after major goodwill impairment

Underlying profits crashed 87% at DX Group, the mail and logistics company, in the first half of the year, while a major write-down of goodwill sent it into a large paper loss.

Although management had largeley forwarned investors in November that fierce industry competition was weighing on margins and new business coversions, shares in the company sank further on seeing revenues falling 4% to £141.6m in the last six months of the year, with profits before tax and exceptional items crumbling to £1.3m from £9.9m a year before.

Moreover, due to challenging industry conditions and declining profits DX, which was floated on AIM in 2014 by troubled private equity owner Candover and its lenders, made an £88.4m impairment to the goodwill associated with Candover's purchase of DX in 2009.

This write-off resulted in a reported loss before tax of £87.1m.

As this was a non-cash charge, directors still felt confident to reiterate their commitment to a full year dividend of 2.5p per share and to declare an interim dividend of 1.0p per share, which is half the level issued last year and remains subject to shareholder and court approval of a capital reduction.

Net debt at the half-year point, which is also the seasonal peak of the annual cycle, stood at £12.3m.

Chief executive Petar Cvetkovic argued results were "in line with revised management expectations" and said his team continued to find solutions to the industry's challenges and follow the new strategic "OneDX" plan, of which the development of a new postal hub is central.

"Although market conditions remain difficult, we have completed the managed exit of a number of unattractive contracts and have seen our sales team start to secure attractive new contracts."

He added: "Despite the current headwinds to the business, and with much to do still in the seasonally important second half, the board anticipates that the company will trade over the full year broadly in line with its expectations. We continue to position the group for longer term sustainable growth and the board remains confident in the medium term outlook for the group."

House broker Numis said DX have now decided to use a third party to develop the new hub, planning to sign a 25-year lease at a cost of £2.1m per year with the first year rent free, offsetting lower rent, rates, depreciation and interest.

As a result, the difference at the EPS level from leasing versus owing the facility will be small, with management believing it will enable them to take at least £4m of costs out of the business.

For the full year Numis forecasts £288m sales, EBITDA of £18.1m, £11.6m underlying PBT and 4.6p underlying EPS, with PBT and EPS crawling to £12.1m and 5p in 2017.

Shares in DX lost 18% to finish on 19.38p, still above January's low of 14.5p.