Coventry relocation impacts UK Mail worse than expected
THE relocation of UK Mail’s Birmingham distribution hub has had a greater impact on the business than anticipated, the business had revealed.
In a first half trading update the company said the move had resulted in a greater loss of volume and customer churn than was expected.
It has now warned shareholders the impact on full year performance will be below previous expectations, although the longer term looks better.
The company was forced to relocate the Bromford centre to Prologis Park near Coventry because the existing building lies in the path of the HS2 high speed rail line. It funded the new hub with a £10m compensation package agreed with the Department for Transport.
The statement said: “UK Mail is in the midst of a period of major investment and transition. Whilst the longer term opportunities for the group are substantial, the first half of the current financial year was expected to be challenging.
“It is now clear that the near-term challenges and their impact on the current year’s performance are more significant than anticipated.
“While parcel volumes for the first four months of the new financial year were some 4% ahead of the comparable period last year, the move has caused a greater level of customer churn and loss of volume than anticipated, with an associated adverse impact on parcels revenue mix. In addition, a greater than anticipated proportion of current parcels volumes is incompatible with UK Mail’s new automated sortation equipment, resulting in additional operating costs and therefore a delay to the full benefits expected from automation.”
Management said it was taking action to resolve the issues, and the group remained satisfied that the anticipated financial and operational benefits from the new hub and increased automation would be achieved in the medium term.
Elsewhere, it said the group’s Mail business continued to perform well, with volumes up by some 6% during the first four months of the new financial year.
However, this could not disguise the difficult six-month period.
“Overall, the board anticipates that the group’s performance for the current financial year will be materially below current market expectations, with profit before tax (before one-off exceptional items) now expected to be in the range of £10m to £12m, and with some continuing impact into the first half of the next financial year,” it added.
Guy Buswell, CEO of UK Mail, tried to put a gloss on the situation by saying he was confident the actions taken by the company would turn things around but added the setback to financial performance was “clearly very disappointing”.
“We continue to believe that it will make us one of the most efficient and competitive operators in our markets and, with number of significant new customers keen to use our services as a result of this investment, we remain confident in our medium and long term growth prospects,” he said.
