20th May 2015 08:00
LONDON (Alliance News) - UK Mail Group PLC Wednesday admitted it's facing some near term challenges as it transitions to a brand new hub that will allow it to handle more parcels in the future, as higher costs offset a slight revenue increase in its last financial year.
The smaller competitor to Royal Mail PLC reported a pretax profit from continuing operations of GBP15.9 million for the year to end-March, down from GBP16.8 million a year earlier, even though revenue rose to GBP485.1 million from GBP481.4 million.
Including GBP10.8 million of losses from the pallets business it closed in March, its net profit declined to GBP5.1 million from GBP17.5 million.
Still, it increased its final dividend to 14.5 pence, from 14.2p, meaning the total for year rose to 21.8p from 21.3p, covered 1.39 times by underlying earnings per share.
UK Mail had already flagged that it had taken up significant new parcels business since the collapse of City Link at the end of December, but this also meant parcels volumes temporarily rose above its "optimal" operating capacity and resulted in extra costs. It said it expects this to continue until an automation roll-out is completed in September.
The company has grown strongly over the last five years, driven by the surge in home shopping and resulting growth in parcels volumes. It is moving into a new hub, which is now operational but is still being automated and it expects to reach its new optimal efficiency by the second half of the current financial year.
"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," Chief Executive Guy Buswell said, adding that the medium- and long-term outlook "remain very positive.
"We see significant opportunities in both the parcels and mail markets, in part from the changing competitive landscape and our strong value-added positioning within it, and in part from the new initiatives we continue to pursue such as imail, imailprint, and the opportunity to expand significantly in the packets market," he added.
UK Mail said its parcels business had continued to deliver a satisfactory underlying performance in the last financial year, with good volume growth. In its mail business, volumes were up 4.3% in a market that declined about 3%. Revenue was up 2.0% in its courier business.
It said its underlying cash generation remains strong. It swung to a net debt of GBP5.2 million at the end of March, from a net cash position of GBP27.0 million a year earlier, after it invested about GBP36.1 million in its new hub. It said it had managed its cash levels carefully.
UK Mail shares were down 2.1% at 505.00 pence early Wednesday, while Royal Mail was up 0.1% at 499.61 pence.
By Steve McGrath; [email protected]; @stevemcgrath1
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