UK Mail warns of tough first half following hub relocation

PARCEL delivery group, UK Mail has warned that the first half of the new trading year is likely to be a tough one as the business repositions itself following the relocation of its distribution hub.

The company was forced to quit its base in Birmingham after the site was compulsorily purchased by the Government to make way for the proposed HS2 high speed rail into the city.

It has developed a new hub at Prologis Park in Ryton, investing £35m in the site – much of its paid for through compensation agreed with the Department for Transport.

“The investment in the new hub in the period comprises the continuing payments for the construction of the national hub and new Birmingham head office.  The cumulative total expected to be spent on the land and building over the period to March 2016 is some £35m. We expect our net contribution to the building of the new hub, reflecting the contribution from the DfT and HS2, will be some £15m which covers the enhancement of the site and building beyond the scale of the current facility,” it said.

In its annual results statement the company confirms that it injected £22.6m into the new facility in the year to March 31, 2015. This followed an outlay of £13.3m in the previous financial year.

In its outlook, the company said: “Parcels is a growth market that is rapidly polarising between high quality, innovative and sophisticated operators and those at the opposite end of the value scale.  We are in the midst of a phase of substantial strategic investment to place us at a significant competitive advantage in the value-added segment of this market for the medium and longer term.”
 
It said it continued to see “significant opportunities” for its Mail business resulting from changes in the marketplace to new initiatives it is pursuing such as imail and imailprint.

“The immediate focus for our business is on managing the transition to the new hub combined with the effective introduction and roll-out of the new automated sortation equipment, with the associated amendment to the profile of the consignments we handle.  This investment, the benefits of which are expected to be seen from the second half of the current financial year, will set us up very well for the next stage of profitable growth,” it added.  
 
However, it tempered this by adding that the first six months were likely to be a difficult period.

“The first half of the new financial year will be challenging as we reposition our parcels business and manage the full transition to the new hub. This, together with the implementation and roll-out of the new automation, will result in performance for the year being more weighted to the second half than usual.”
 
Nevertheless, it said that ultimately the medium to long term outlook for the group remained very positive.

One unexpected benefit to the business has been a significant increase in new parcel volumes taken on in Q4 as a result of the collapse of Coventry-based City Link. However, the group did experience increased operational costs in short term due to capacity constraints.

Full year results show revenues for the group rising 0.8% to £485.1m (2014: £481.4m). However, group pre-tax profit (before exceptional items) declined 4.2% to £21m (2014: £21.9m), which was in line with expectations. Net debt at year end was £5.2m (2014: net cash of £27m).
 
Nevertheless, it increased its final dividend 2.1% to 14.5p per share (2014: 14.2p), giving a total dividend increase for the year of 2.3% to 21.8p (2014: 21.3p).
 
Guy Buswell, CEO, UK Mail, said: “After a strong period of growth, with the volume of parcels handled within our business doubling over the past five years, UK Mail is in the midst of a period of major investment and transition at a time when our markets are undergoing significant change.  All this has created some inevitable challenges but also significant longer-term opportunities.
 
“Our investment in a newly constructed, fully automated hub at Ryton near Coventry is the largest strategic development in UK Mail’s history, bringing extra capacity and reducing operating costs across our business and setting us up very well for our next stage of profitable growth.”