UK Mail relocation challenges send profits tumbling

UK Mail’s transition to a new automated facility in Ryton has seen the company’s profits tumble for the first six months of the financial year.

The company said the transition, which it boasts is the “single most significant strategic development in the group's history”, has been challenging in the short term due to inefficiencies both in the new hub and in its transport network.

“This, combined with the volumes of non-machinable and incompatible freight that cannot be handled by our automated sortation equipment, has placed added pressures on the new facility.

“As a result we have experienced additional costs, a temporary reduction in service levels (now restored) and a greater level of customer churn than anticipated, impacting our parcels revenue mix.”

The company’s profit before tax but after exceptional items dropped from £12.0m in 2014 to £2.2m this year. Excluding the costs of the relocation among other exceptional costs, profit before tax more than halved from £11.2m to £4.9m.

However, the group’s net exceptional costs of £2.7 were largely offset by compensation from the Department for Transport for the proposed High Speed Two railway of £6.8m.

The company also reported that revenues were up 4.5% on the previous year, from £227.5m to £237.6m, driven by 5.3% growth in its parcels business.

UK Mail chief executive Guy Buswell said the current investment and transition will deliver significant long term benefits, but the short-term challenges have been bigger than expected.

“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.”

Shares in UK mail plunged on the news, down 39p (10.71%) to 325p per share at 1003 GMT.