UK Mail Group saw profits decline in the year ending March 3, 2011, as tough competition andhigher costs wiped out an increase in mail and parcel revenues.
During its 2010-2011 business year, UK Mail Group increased its group revenues by 2.8% to £395.8million (€448.7 million) while the operating profit was down 10% to £16.2 million (€18.37 million)and the profit before tax down 9.9% at £16.1 million (€18.25 million).
CEO Guy Buswell confirmed: “After a satisfactory start to the year, the second half wasundoubtedly more challenging for the markets in which we operate. Whilst we continued to growrevenues in our core businesses, our margins and therefore profits came under pressure.”
The group’s mail division showed continued success in winning new customers as it developed newproduct innovations and generated further mail growth from existing customers. As a result,revenues rose 4.8% to £181.8 million (€206.1 million). However, the impact of the continuedcompetitive price environment throughout the year and the costs of disruption due to the snow inDecember reduced mail operating profit for the year by 3.3% to £11.8 million (€13.38 million) andthe operating margin was down to 6.5%.
Within the overall UK mail market, there has been a decline in transactional volumes of some 4%per year in recent years. “Pricing in the transactional mail market is very competitive. In thepast, we have been able to offset pricing pressures through the increased economies of scale thatcame from material volume growth; as the market matures, this is more difficult to achieve,”Buswell stressed. The company has therefore highlighted product innovation as an important factorin the continued progress of its Mail business to open up new segments of the mail market.
“imail, our web-to-print postal service, now includes appointment cards, “economy” black andwhite printing and mailing list production, and is continually being developed to support itsmarket leadership. We have now created a very strong platform for this new concept in the UK mailmarket, with average daily volumes in March 2011 more than double those of a year ago, and a goodpipeline of new opportunities,” Buswell added.
The parcel division saw revenues go up by 1.2% to £166.7 million (€189 million) for the fullyear but its operating profit decreased by 18.9% to £12.1 million (€13.72 million) with theoperating margin at 7.3%.
The parcel business has been impacted by the effect of B2B volumes growth remaining low in thesecond half, combined with the disruption caused by the snow in December. This was however largelyoffset by stronger B2C volumes, resulting in an overall volume increase of 4.3%.
“We continue to be successful in winning new parcels customers as a result of our high servicelevels, low-cost network and strong brand in the market. We continue to drive down costs to improvethe profitability of our parcels operations. A key area of focus is our network cost where we areaccelerating plans to reduce our fixed cost base in the coming year. We also intend to reduce ourvehicle costs through improved route planning and vehicle utilisation, and have taken action toreduce our administrative support costs,” the company stressed.
The company’s courier and pallets businesses have delivered satisfactory performances withoverall operating profits broadly in line with last year, UK Mail stressed.
UK Mail has recently introduced a number of major improvements to its IT infrastructure. Allcustomers can now be notified in advance of expected delivery times and given easy to usefacilities if they need to re-arrange deliveries. “As part of these improvements we are introducinga completely new internet platform which will help support business growth and drive down costs.”& amp; amp; amp; amp; lt; /p>
Looking ahead, Buswell expects a continued decline in underlying mail volumes in the UK marketas a result of the recent price increases imposed by Royal Mail. “Whilst this will represent achallenge, we maintain our aim to more than offset this factor through additional mail volumes fromnew and existing customers, combined with the growth opportunities presented by our new productdevelopments.”
“Our parcels business is in an increasingly strong position compared to its key competitorsthanks to the benefits of our low-cost network and the industry-leading services we are continuingto introduce. This market will remain challenging, but we believe our focus on key customersegments, such as Retail Logistics, should allow us to make progress in the coming year,” hesaid.
“Our strategy remains to continue to build competitive advantage, developing and investing inour low cost integrated network, driving down cost, investing in IT infrastructure and bringing tomarket new products and services to drive profitable revenue growth,” Buswell concluded.
