The slowdown in the UK economy has hit the half-year profits of mail and parcels firm DXServices. The independent group said in a trading statement that it expected its six-month
operating profits to drop about 12 per cent due to an anticipated reduction in revenues and higherdelivery costs. It will announce its interim results for the six months to 31 December 2005 on 7March 2006.DX Services competes with Royal Mail and other mail firms in the next-day letters market throughits own nationwide delivery network, and is one of 14 fully-licensed mail operators in the now 100per cent deregulated UK postal market.
The company said that revenues in its core business – the Document Exchange for high-valuedocuments such as property contracts – is expected to be around £41 million in the six months to 31December 2005 compared to £42.9 million in 2004. Whilst revenue has benefited from the priceincrease introduced in April 2005, DX said it has felt the effects of the general slowdown in theproperty market and operational changes in the financial services sector.
Revenue from Parcels is expected to be around £21 million for the six months to
31 December 2005 (£21.3 million in 2004). The significant additional Parcels revenue expectedfrom new customers has been achieved, although this has been offset by an overall reduction involumes due to general market conditions. Revenue from Mail is expected to be around £2.4 millionfor the six months to 31 December 2005 (£2.6 million in 2004). DX said it was encouraged that anumber of mailroom management companies have started to use the DX Mail product.
Following the final stage of postal services liberalisation on 1 January 2006, DX said it plansto enhance its position as the best quality low-cost carrier of mail whilst providing the highestlevels of customer service and retention. DX has a unique legacy in its existing Document Exchangebusiness which continues to be very cash generative. The appointment of a new CEO in November lastyear has resulted in the company re-examining the market opportunities and begin to implement amore robust approach to the development of a new mail and parcels business built around theexchange network, reflecting lessons learnt.
The directors see limited prospect of volumes in the Document Exchange and in Parcels increasingin the short term. Revenues are now expected to be lower than had previously been anticipated.Furthermore, the group’s new DX Mail product and volumes from new Parcels customers are proving tobe more costly to deliver than had previously been assumed.
Paul Kehoe, the company’s recently-appointed chief executive, commented: “I am naturallydisappointed that I have to use this statement, the first following my appointment as ChiefExecutive, to report that profits will be worse than had previously been anticipated. However, I amconfident that the strategies in place and the actions we are taking will result in an improvedperformance in the new liberalised market. Having reviewed the business, I am convinced that wehave an excellent platform – the Document Exchange – on which to build a successful mail deliverybusiness. We are going to be the best low-cost carrier in the market but with a focus on servicedelivery and service quality.”
