UK Mail Group profits suffer during "challenging" winter
The UK Mail Group has reported increased revenues, but decreased profits in its latest financial results for the full year ended March 31, 2011. Challenging economic conditions were compounded in the second half of the year by large amounts of snow in December, so while revenues were up 2.8% overall to GBP 395.8m, profit was down 9.9% to GBP 16.1m for the year.
UK Mail said revenues in its mail business were up 4.8% to GBP 181.9m with good progress in bringing in new customers and increased custom through product innovations. Mail profits were down 3% year-on-year, however, with prospects that a major price rise at Royal Mail this month will mean challenges for the coming year.
Parcel revenues were up 1.2% in the 12 months up to March 2011, but in a highly competitive market operating profits were down 19% with margins squeezed.
UK Mail reported a “strong” cash balance of GBP 17.4m at the end of the year, but at the close of the year basic share earnings were down 9.4% to 21.2p per share, although dividends were maintained for the year at 18.2p.
Commenting on the year’s performance, chief executive Guy Buswell said: “After a satisfactory start to the year, the second half was undoubtedly more challenging for the markets in which we operate. Whilst we continued to grow revenues in our core businesses, our margins and therefore profits came under pressure.”
UK Mail’s mail business has been countering an ongoing 4% decline in transactional volumes with new products such as the web-to-print service, imail.
Average daily volumes for imail in March were double those a year ago, with new additions such as an appointment card printing service and economy black-and-white range.
The company’s Packets product, launched early last year, has been building on growth in internet-based shopping to around 20,000 per night. UK Mail aims to widen its service to attract more small business customers.
A new pricing regime approved by regulator PostComm and implemented this month (May 2011) are set to see wholesale prices at Royal Mail rise by 20%, which will mean “unprecedented” price rises for UK Mail customers, it warned.
This will mean a 15% increase in UK Mail’s mail revenues, but likely also a reduction in margins.
Parcels
Margins narrowed in UK Mail’s parcels from 9.1% a year ago to 7.3% with a continuing competitive environment in the market.
Business-to-business volume growth was subdued in the second half of the year, which was made worse by winter weather disruptions, though offset by stronger business-to-consumer volumes meaning an overall 4.3% volume increase for parcels.
Working to reduce costs from parcel operations, a priority for UK Mail is now on cutting network costs and vehicle costs through improved route planning and vehicle usage.
Strategy
Based on expectations of continuing “tough” economic conditions, UK Mail’s plans for the coming year are to continue cutting costs and increasing efficiency.
Volume declines are expected to be spurred on by the Royal Mail price increases, but the company said it could offset this by attracting new customers.
Investments for the company’s IT infrastructure to improve services and introduce new information and data services for customers.
More new products in the parcels and mail businesses in order to grow the market and UK Mail’s market share.
Buswell said: “Our strategy remains to continue to expand our available markets and to increase our share of those markets by introducing new and innovative products and services, whilst enhancing the low-cost, integrated network that lies at the heart of our business.
“The difficult conditions impact all operators in our markets. Our focus on efficiency and innovation, combined with our strong balance sheet, put us in a strong position to continue to outperform our competitors and to defend and increase our market share,” the UK Mail CEO added.
