British mail and parcels group UK Mail improved revenues and profits by strong double-digitrates in the year ending March 2013 due to parcel growth and now plans more new products and a £20
million investment in parcel sorting automation.It also emerged today that the firm’s Birmingham hub would have to be relocated under theBritish government’s long-term plans for a new high-speed rail track from London through theMidlands to northern England. Discussions with the Department for Transport “are proceeding welland further announcements will be made shortly once agreement has been reached with the Secretaryof State for Transport”, UK Mail stated.
UK Mail’s revenues increased by 10.8% to £475.4 million in the April 2012 – March 2013 year,with reported pre-tax profits up 37% to £17.8 million and net profits 41.9% higher at £13.5million. Key factors were revenue growth due to customer wins and a surge in parcel volumes in thesecond half of the year.
CEO Guy Buswell said: “I am pleased to report a very strong performance in the second half,which has led to a particularly good result for the year. Our industry is undergoing somefundamental changes, from the rise in e-commerce and e-communication to the expected forthcomingprivatisation of Royal Mail, a valued business partner of UK Mail. Today’s results demonstrate thatour business model has the inherent strength to adapt to this changing market and grasp theopportunities that exist.”
The Mail business, which accounts for 51% of group revenues, increased its revenues on areported basis by 16.1% to £241.6 million. This was a 10.2% rise on an underlying basis, excludingthe effects of higher Royal Mail prices which also boosted UK Mail revenues. Mail volumes increasedby about 2% due to new contracts and higher volumes from existing customers. The division’soperating profit increased by 7.8% to £10.7 million but the profit margin fell back slightly to4.4%.
UK Mail said it has signed a new access contract with Royal Mail for letter delivery which hasincreased customer access prices by 3.3% and it expected that a privatised Royal Mail wouldcontinue to seek profitable access contracts.
UK Mail’s parcels business increased revenues by 10% to £189.3 million and improved itsoperating profit strongly by 40.6% to £16.3 million. A 17% volume increase was driven by newcontracts and higher B2C volumes while cost control improved profitability.
“This performance is driven by good customer retention based on competitive pricing and strongservice levels. We have also benefitted from a number of good customer wins, although wecontinued to see an ongoing volume mix change towards the lower margin B2C segment,” the companystated. “The overall parcels market in the UK is challenging and highly competitive. Our targetposition is to be a high quality operator which provides the value added services that customerswant. The key here is a reliable next day service, providing customers with estimated deliverywindows, which can easily be re-arranged, with the use of IT to provide added information.”
The ipostparcels online service, enabling SMEs and consumers to arrange parcel collection anddelivery, has grown fast and is generating some 10,000 items per week. “There is an increasingtrend for parcel collection and delivery services to be purchased by consumers on-line, partlycaused by the growth of on-line transaction sites such as ebay and Amazon market place. Wewill continue to develop and market this product which we see as a good source of futureprofitability,” UK Mail said.
Looking ahead, UK Mail said it is upgrading customer services and its capabilities with diversemeasures. Parcel capacity will be increased to cope with volume growth by expanding four of its 50sites this year. It has invested £1.2 million in 2,000 new scanners for delivery drivers to improvecommunications. “The new scanners also include GPS facilities which will be the basis for improvedroute planning and customer delivery notification which we plan to introduce in the autumn,” thecompany disclosed. All customers will be notified in advance of expected delivery times and giveneasy-to-use facilities if they need to re-arrange deliveries.
UK Mail also said it will invest some £20 million over the next two years in more automatedsorting equipment at its Birmingham hub to increase automated parcel sorting from the present 20%to 80% of volumes. This increased automation of parcels operations will increase the centralsortation capacity by some 45%.
The Retail Logistics product, which provides services tailored to the specific needs ofretailers, such as hanging garments, continued to make good progress and the company will open adedicated Retail Logistics facility, including automated sortation capabilities for hanginggarments, to provide increased capacity for growth in the £1.2 billion market.
Meanwhile, the small courier business, which provides same-day delivery services, saw revenuesdrop by 19.6% to £16.5 million, largely due to the loss of a major customer in early 2012, and theoperating profit declined slightly to £2.6 million, leaving the unit’s profit margin up at 15.5%due to cost reductions. “We have now developed a highly efficient nationwide courier network with aproven ability to support national contracts, which adds to our ability to offer a fully integratedproposition and supports product development across the group,” UK Mail stated.
Revenues in the Pallets business, which provides a nationwide palletised goods delivery servicethrough a partner network, decreased fractionally to £28 million but profits dropped heavily to£0.8 million due to higher delivery costs after some network partners left. But UK Mail stressed: “These network issues are now resolved and we have developed successful relationships with majorhauliers, which will play a major role in developing this business in the future. We remainconvinced that this business can be successful in a market with good long term growthprospects.”
Looking ahead, Buswell said parcel volume growth had continued in the first weeks of the newbusiness year and the company was confident of winning further market share. “Whilst maintainingour tight focus on costs, we will at the same time be continuing to invest confidently in ourunique integrated network. Alongside our pipeline of innovative new products and high servicelevels, greater automation is now a key factor in our plans to drive further volume growth andmargin enhancement across the group.”
The company’s strategy would continue to be based on operating a low-cost, integrated networkand on seeking revenue and market share growth through new products and services, he concluded.
