UK Mail’s continued investment in its infrastructure, including the move from its Birmingham HQ to a new fully automated Ryton hub, resulted in a dip in pre-tax profit in the year ended 31 March 2015.
In its latest results, the business saw group revenue climb 0.8% to £485.1m (2014: £481.4m), while pre-tax profit (before exceptional items) slipped 4.2% to £21m (2014: £21.9m).
Exceptional items cost the business £11.3, including a £9m goodwill write-off from the closure of UK Pallets earlier this year.
The firm said after a period of strong growth, with parcel volumes doubling over the past five years, it is now in a period of investment and transition at a time when the company’s core markets are also changing significantly, such as shifts in consumer spending patterns.
UK Mail chief executive Guy Buswell adds: “Our investment in a newly constructed, fully automated hub at Ryton near Coventry is the largest strategic development in UK Mail's history, bringing extra capacity and reducing operating costs across our business and setting us up very well for our next stage of profitable growth.
“The first half of the new financial year will be challenging as we reposition our parcels business and manage the full transition to the new hub. This, together with the implementation and roll-out of the new automation, will result in performance for the year being more weighted to the second half than usual.”
Parcels
Parcel revenue, which comprises the group's B2B, B2C and international parcel delivery service, was up 3.7% to £228.1m (2014: £219.9m), with average daily volume up by circa 7.4%.
Growth was boosted in the division in Q4 following the collapse of rival parcel firm City Link, with volumes surging by 12.9%. However, while a long-term positive for the business, UK Mail said the short-term effect has seen the network operating above its optimal capacity leading to extra cost for the business.
Operating margin reduced to 9.4% for the period (2014: 10.2%), resulting in a decrease in the Parcels operating profit to £21.4m (2014: £22.4m).
New services, such as ipostparcels and enhanced next-day options including one-hour delivery slots and tracking texts are key growth areas.
Average daily mail volumes increased by 4.7% compared to last year, while the overall UK mail market has seen a decline in transactional volumes of some 3% per annum, which the company said demonstrated market share gains in the Downstream Access market.
Mail revenue decreased by 1.9% to £240.5m (2014: £245.3m), mainly attributed to extra Customer Direct Access (CDA) mail, which carries a substantially lower revenue per item. “This mix change is largely the result of our Mail business winning a very significant public sector CDA contract during the year,” said UK Mail.
Operating profit decreased by 1.7% to £12.5m (2014: £12.7m).
The continued Ofcom review into Access pricing, while not expected to have any direct impact on UK Mail, continues to cause uncertainty in the market and for users of end-to-end services in particular. An early resolution of these issues would be welcome, it said.
Courier
UK Mail has said it plans to integrate its Courier division within its Parcels business and will no longer separately record its performance, as the operation is now a key part of the retail logistics arm within its Parcel division.
Courier revenue increased by 2% to £16.5m (2014: £16.2m). Operating margins, however, decreased to 13.4% (2014: 17.0%) leading to a decrease in the operating profit by 19.6% to £2.2m (2014: £2.7m).
Pallets
Following the decision to close UK Pallets in January this year, with the business ceasing trading in March, UK Mail said the wind-down was handled without disrutption to customers and staff treated fairly.
A loss after tax of £10.8m for the year (2014: profit after tax £0.7m) was reported, which includes the exceptional impairment of the goodwill arising on the acquisition together with the costs of closure (£1.4m), largely relating to redundancy and dilapidation costs.
