Operating profit from parcels operations almost doubled for UK Mail in the first half, compared with a more modest 10.9 per cent profit improvement in its mail business.
Parcel sales were up 21.4 per cent to £105.8m while operating profit rose 91.3 per cent to £11.1m
In its interim statement, it said: “We have achieved strong volume growth in both the B2B and B2C market segments throughout the period, with Parcels average daily volumes increasing by some 25 per cent compared to the same period last year. This performance is driven by good customer retention and a number of good customer wins. We continue to see an on-going volume mix change towards the lower margin B2C segment.”
“The strong volume growth allows us to spread our fixed costs across the increased volumes and so improve our operating margins. As a result, despite the continued competitive pricing environment, we have improved our Parcels operating margin to 10.6 per cent for the period (2012: 6.7 per cent).”
UK Mail has also been developing a specialised retail logistics product to provide services tailored to the specific needs of retailers, with a special capability to handle hanging garments.
It said: “We opened our specialist distribution centre in July 2013, and automated sortation capabilities for hanging garments will be introduced in the second half. We have also introduced improved software which allows us to seamlessly combine our Parcels and Courier networks to provide a flexible product to customers.”
The High Speed 2 rail link is planned to go straight through UK Mail’s existing hub in Birmingham and as a result the company is planning to move to a new hub.
It said: “Following Parliamentary approval of the Paving Bill for HS2, we expect to complete our contract with HS2 and for it to become unconditional in December 2013. Subject to receipt of planning consent, we would expect construction to start in early 2014 and to be completed by the autumn of 2014.”
It will take the opportunity to introduce further automation sortation into the parcels operation. “The expectation remains that this will cost some £20m which we will incur over the course of this and the next financial year,” it said.
UK Mail’s pallets business saw a 1.6 per cent fall in sales to £14.1m while operating profit fell 26.1 per cent to £600,000.
“The Pallets business is based on a national network of members,” it said. “In the last financial year we experienced temporary gaps in the network which reduced input volumes and gave rise to additional delivery costs. Those gaps are resolved although it will take time for the new members to achieve the sales volumes that would be expected from established members. This means that operating profits in the current financial year will be held back from previous achieved levels.”
For the group as a whole, operating profit was up 63.2 per cent to £11.8m while sales were up 7.9 per cent to £243.4m. Chief executive Guy Buswell said: “We are now entering the next phase of strategic investment. With significant steps forward planned over the next two years in our capacity, customer-facing technology, IT infrastructure and automation, these investments will create the platform for the next chapter of growth for the Group over the coming years.”