UK Mail Group troubled by festive parcel volume growth

Parcel, mail and logistics company UK Mail Group saw its parcel volumes increasing by 10% during the run-up to Christmas, compared to the last three months of 2010. But the company based in Birmingham has been struggling to make the extra volumes work for its balance sheet, saying the change in its service mix towards handling more business-to-consumer volumes may actually have hindered, rather than helped its revenue growth.

Issuing an interim financial statement last week, the company insisted its overall performance for the third quarter of its fiscal year was in line with expectations. Revenues for the quarter up to December 31 were up 6% compared to the same period in the previous year.

However, much of that growth came purely because of prices going up in response to Royal Mail’s price increase in May. Adjusting for this issue, UK Mail’s revenues rose only 1% year-on-year in Q3.

Some of its rivals saw their parcel volumes increasing in the Christmas period by as much as 40% thanks to increasing consumer confidence in online shopping.

Parcel delivery companies that have traditionally served business-to-business clients can find the different process or economics of providing more home deliveries difficult. Internet retail was the driving factor for UK Mail’s 10% uptick in volumes, but the company said in its trading statement: “This change in mix towards B2C restricted the level of revenue growth.”

UK Mail and its chief executive Guy Buswell were not returning calls today about their latest results.

“Challenging”

The company said in its statement that pricing in the UK market has been “challenging” of late, but said of the Christmas period that its operational performance was sound.

“Our operations were well-managed throughout the peak Christmas period, allowing us to maintain our full delivery service, something we believe a number of our major competitors did not consistently achieve,” said the company.

Away from parcels, UK Mail said its letters business had a “good pipeline of customer opportunities”, but was nevertheless reflecting decline in the access mail market, with revenues on a comparable basis down 4% compared to the same period last year.

The Group reported “good revenue growth” in its courier and pallets divisions, with a “sound financial position” overall.

“We remain cautious about the evolving market environment and continue to assume that UK economic conditions will remain tough throughout 2012,” said UK Mail. “Our strategy remains to continue to build competitive advantage, developing and investing in our low cost integrated network and bringing to market new products and services to drive profitable revenue growth.”