18th Nov 2015 07:44
LONDON (Alliance News) - UK Mail Group PLC on Wednesday said the time it will take to resolve the problems in its Parcels business will hit its outlook for its next financial year, though it affirmed is guidance for the current year despite pretax profit for the first half plunging due to higher costs and one-offs.
UK Mail said the longer-than-expected timescale for resolving the operational issues in its Parcels network and the consequential impact this will have on its earnings both in its 2016 and 2017 financial years and have forced its outlook for the year to March 2017 to be "softened slightly".
The company said, however, that it remains confident in the strategic rationale behind the changes it is making in the Parcels business over the medium term.
Due to the concerns about the impact the restructuring will have on its 2017 results, however, the group has cut its interim dividend payout to 5.5 pence per share, down from 7.3p. It said it considers it "prudent" to rebase the dividend given the challenges it currently faces.
UK Mail said its pretax profit for the half to the end of September was GB2.2 million, sharply down from the GBP12.0 million it made a year earlier due to a weaker gross margin, impairment charges and costs related to the relocation of its national distribution hub. Revenue rose to GBP237.6 million from GBP227.5 million.
The company has recently relocated a move from its previous hub in Birmingham to a new, automated facility in Ryton in Tyne and Wear. But the group has faced more challenges than anticipated with the move, particularly from inefficiencies in the new hub which have taken a bite out of the profitability of the Parcels business.
Parcels revenue grew 5.3% in the first half, backed by average daily volume growth of 9.0%, UK Mail said, while revenue from its Mail business rose 3.6%, with volumes increasing 8.1%.
"Trading in the initial weeks of the second half, and overall trends within our individual businesses, have been in line with our revised expectations. Our expectations for the current year therefore remain in line with previous guidance. However, due to the timescales required to fully resolve the challenges, our expectations for the next financial year have softened slightly," said Guy Buswell, UK Mail's chief executive.
"Whilst this is disappointing, the strategic rationale for the transformation we are undertaking is as compelling as ever, and we are confident both of our ability to restore our parcels business to previous levels of profitability and to build from there. The medium-term operational and financial benefits will place us amongst the most efficient and competitive operators in our market," he added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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