UK Mail first-half profits down as challenges grow in 2011 market

UK Mail Group has seen revenues increasing 5.7% but profits down 8% year-on-year in the six months up to the end of September. The company said much of the growth in its revenues, which were GBP 201.6m for the first half of the 2011 fiscal year compared to GBP 190.7m the same period last year, came from Royal Mail’s price rise in May.

On a like-for-like basis, group revenues increased 2% year-on-year.

Profits, however, have slipped to GBP 6.8m for the period, with one less working day than in 2010 but also from reduced margins, particularly during a “challenging” second quarter.

The company said mail volume declines were continuing in transactional segments, while parcel volumes were increasing by 11%. However, the increase in parcel volumes saw a shift from B2B to B2C parcels that had a dampening affect on margins.

Guy Buswell, the UK Mail CEO, said a “satisfactory” first quarter was followed by a more challenging second quarter, stating the belief that the “tough” conditions would continue through to the end of the year.

“Our strategy remains to continue to build competitive advantage, developing and investing in our low-cost integrated network, driving down cost, investing in IT infrastructure and bringing to market new products and services to drive profitable revenue growth,” Buswell said.

Mail

Mail revenues increased 9.2% to GBP 93.8m largely thanks to the 15% Royal Mail price rise – on an underlying basis, they were level with those seen last year. Operating profits in the mail division were down 9.3% to GBP 5m, with competition in the market placing pressure on prices, with margins narrowing to 5.4%.

However, the company insisted it was well positioned for new business opportunities.

Transactional volumes are declining at around 4% a year, but UK Mail is aiming to cope through new products in new segments.

In the mail division, UK Mail also said its hybrid mail service, imail, was growing successfully, its virtual volumes in September 2011 double those seen a year previously.

Parcels

Parcel revenues grew by 3% to GBP 83.5m, with recent customer wins countering market price pressures and a volume mix that has seen a shift from B2B to B2C parcels affecting operating margins.

Profit decreased in the parcels division by 14% to GBP 5.6m, as margins tightened more than a percentage point to 6.6%.

UK Mail said its parcels division was impacted by “subdued” business-to-business volume growth in the first half of the year, through stronger business-to-consumer volumes meant overall parcel volumes during the half increased by 11%.

Buswell said the company had taken action to help reduce the fixed costs of the business, closing two depots and reducing the number of mail processing sites to 52. The actions meant one-off costs of $800,000, but added flexibility.

Looking ahead, the company said it was focused on winning a larger share of the markets available, with plans to introduce new products and services across the mail and parcels businesses.

The company is particularly looking to build its business with major retailers, targeting a GBP 1.2bn retail logistics market.

Keys to competing in the parcels market will be offering reliable next-day delivery and delivery windows that can be easily re-arranged thanks to UK Mail’s investment in IT systems, it said.

UK Mail has also noticed an increasing trend for customers to buy parcel delivery services online, rather than through traditional contract approaches, a trend driven by smaller businesses making use of platforms like eBay and Amazon Marketplace.

Courier, palletised goods

In other areas of its business, UK Mail said it saw revenues in its same-day Courier unit increasing 6.4% to GBP 10m, with margins increasing to 11.8% and operating profits up 20% to GBP 1.2m thanks to efficiency improvements.

The company’s palletised goods unit saw revenues down 0.2% to GBP 14.2m, although efficiency gains saw margins up nearly a point to 7.2%, and operating profits up 14.7% to GBP 1m.

Commenting on the UK Mail divisions, Buswell said: “Our mail business remains a market leader with an operational template that is ideally suited to adapt to the demands of an evolving market, and our parcels business maintains a good position compared to its key competitors, thanks to the benefit of our low-cost network and the industry-leading services we are continuing to introduce.”

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