24th May 2016 11:21
LONDON (Alliance News) - UK Mail Group PLC on Tuesday delivered lower annual pretax profit due to a series of exceptional items booked over the course of the year, but said its new automated hub is performing well following a troubled birth.
UK Mail's financial year has been dominated by problems faced with its new automated hub in Ryton in Tyne and Wear, where it relocated in July 2015 from its former site in Birmingham. The site was displaced by High-Speed 2, the new high-speed rail line planned in the UK between London and Birmingham and into the north of the country.
Inefficiencies at the new site resulted in volume and margin squeezes in the first half and contributed to UK Mail's pretax profit sinking to GBP2.2 million for the first six months of its year to September 30, from GBP12.2 million a year prior.
Those problems showed through in the final results too. Pretax profit for the year to the end of March fell to GBP14.4 million from GBP20.1 million, partially offset by a compensation payment the company received from HS2 for its relocation troubles. Taking this compensation payment out, in addition to impairments and hub costs UK Mail booked, operating profit before exceptionals fell to GBP10.7 million from GBP21.0 million.
UK Mail revenue fell 0.8% year-on-year to GBP481.0 million from GBP485.1 million, again hit by the growing pains experienced by the automated hub. In a post-close update in April, UK Mail said inefficiencies at the hub and within its transport network has put pressure on the facility. This was exacerbated by a higher-than-expected volume of freight not compatible with the new automated equipment.
"Last year was a challenging one but we have made good progress in implementing a detailed plan to address the issues we faced in transitioning to our new automated hub. The hub is now operating very well and achieving good throughput levels, having recently processed its 30 millionth parcel, with consistently high service levels in both Parcels and Mail in recent months," said Chairman Peter Kane.
Kane expects the benefits from the investments the group has made to flow through in the second half of the current financial year, meaning the current year will be more weighted to the second half than is normal for the group.
Parcels revenue grew 1.4% in the year, making up just over half the company's total revenue. Average daily volume growth for the year hit 4.5%, UK Mail said, boosted by important new customer wins and weighted to business-to-consumer customers, driven by the growth of online shopping.
As online shopping boosts the parcels business, however, the continued growth of electronic communications drove down Mail revenue by 3.1% over the course of the year, reflecting the secular decline in letters. UK Mail, though, said mail volumes grew 5.2%, driven by a good performance in retaining customers and new wins, albeit at the expense of margins within a highly-competitive marketplace.
UK Mail said it will pay a final dividend of 10.9 pence per share, down from 14.5p a year earlier and meaning its total payout falls to 16.4p from 21.8p.
The group said its immediate focus will be on resolving any issues which arose following the move to the new hub and the group reiterated its confidence that the investments made in the hub will position it well for future growth.
UK Mail said the first half of the year will reflect the fact the group is continuing to work to reposition its parcels business and manage the transition over to the new hub. The benefits of this, UK Mail said, should flow through in the second half and will mean its 2017 financial year results will be more weighted to the second half than is normal.
Shares in UK Mail were up 3.9% to 296.6p, among the best performers in the FTSE All-Share.
By Sam Unsted; [email protected]; @SamUAtAlliance
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