Tough trading hits profits at UK Mail

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Operating profit fell ten per cent to £16.2m at UK Mail last year following tough trading conditions in the second half.

Sales were up 2.8 per cent to £395.8m for the year to 31st March. Chief executive Guy Buswell said: “After a satisfactory start to the year, the second half was undoubtedly more challenging for the markets in which we operate. While we continued to grow revenues in our core businesses, our margins and therefore profits came under pressure.”

Operating profit in the parcels business was down 18.9 per cent to £12.1m. “Parcels performance has been impacted by the effect of business-to-business volume growth remaining subdued in the second half, combined with the disruption caused by the snow in December. This was however largely offset by stronger business-to-consumer volumes, resulting in an overall volume increase of 4.3 per cent,” the group said.

The group is looking at cost savings to improve the profitability of the parcels operations. A key area of focus is the network cost and it is accelerating plans to reduce fixed costs in the coming year. “We also intend to reduce our vehicle costs through improved route planning and vehicle utilisation, and have taken action to reduce our administrative support costs.”

Sales in the pallets business were down 3.2 per cent for the period to £28.1m but improvements in the efficiency of operations and reduced costs resulted in an increase in operating profit of 6.3 per cent to £1.8m.

Operating profit in the mail business was down 3.3 per cent to £11.8m on sales up 4.8 per cent to £181.8m.

A new Royal Mail pricing regime came into operation in May 2011 resulting in wholesale prices increasing by some 20 per cent with retail prices increasing by some 15 per cent. UK Mail said there had been a reduction in the pricing headroom between the price it paid Royal Mail for access to the network and the lowest prices that Royal Mail could charge its customers directly.

“This will have a minor impact on our mail operating margin given the competitive prices we already charge our customers.”

Buswell said: “Our strategy remains to continue to expand our available markets and to increase our share of those markets by introducing new and innovative products and services, while enhancing the low-cost, integrated network that lies at the heart of our business.”


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