UK Mail issues profits warning

UK Mail Group has warned that its full-year profit will be “materially below current market expectations”, as the move to its new automated hub in Ryton near Coventry has caused more disruption than the company anticipated. In a statement issued today (7 August) UK Mail said that it had expected the first half of the year to be “challenging” but “it is now clear that the near-term challenges and their impact on the current year’s performance are more significant than anticipated”.

Commenting on the problems of moving to the new hub, the UK Mail statement said: “While parcel volumes for the first four months of the new financial year were some 4% ahead of the comparable period last year, the move has caused a greater level of customer churn and loss of volume than anticipated, with an associated adverse impact on parcels revenue mix.

“In addition, a greater than anticipated proportion of current parcels volumes is incompatible with UK Mail’s new automated sortation equipment, resulting in additional operating costs and therefore a delay to the full benefits expected from automation.

“Management is taking action to resolve these issues, and the Group remains satisfied that the anticipated financial and operational benefits from the new hub and increased automation will be achieved in the medium term.”

The “incompatible” parcels were packages that were too big or bulky – or just the wrong shape – for the new machinery. This mean that items had to be dealt with by hand, which slowed down throughput.

The UK Mail board now anticipates that the Group’s performance for 2015 will be “materially below current market expectations”, with profit before tax (before one-off exceptional items) “now expected to be in the range of £10m to £12m, and with some continuing impact into the first half of the next financial year”.  The company had reported a comparable profit of £21m in the last fiscal year.

Guy Buswell, Chief Executive Officer of UK Mail, commented: “This near-term setback to our financial performance is clearly very disappointing. However, we are taking decisive action to address these issues and we are confident that they can be reversed.

Buswell continued: “The completion of our new fully-automated hub represents the largest strategic development in our corporate history and the rationale for this significant investment remains compelling.

“We continue to believe that it will make us one of the most efficient and competitive operators in our markets and, with number of significant new customers keen to use our services as a result of this investment, we remain confident in our medium and long term growth prospects.”