Relocation costs set to dent UK Mail more than expected
THE enforced relocation from Birmingham for parcels carrier UK Mail has had a severe impact on the business, the company revealed today.
The company was forced to sell-up and move from its former hub in Bromford due to the building lying in the path of the HS2 route.
The company agreed a compensation package with the Department for Transport but the costs of setting up a new operation at Prologis Park, near Coventry have been higher than expected.
In a trading update attached to the firm’s latest set of interims it stated: “It has become clear that the near-term challenges and their impact on the current year’s performance have been more significant than anticipated.
“It will take longer than originally anticipated to resolve the operational cost issues relating to the new hub but we are confident of achieving this over the next 12 months.”
It said trading in the initial weeks of the second half, and overall trends within the group’s individual businesses, are in line with revised expectations with the peak trading weeks still to come.
However, it said that as a result of the relocation expectations for the next financial year had “softened”.
“Whilst this is disappointing, the strategic rationale for the transformation we are undertaking is as compelling as ever, and we are confident both of our ability to restore our parcels business to previous levels of profitability and to build from there. The medium term operational and financial benefits will place us amongst the most efficient and competitive operators in our market,” it added.
Interims show group revenues of £237.6m up 4.5% on the previous year (2014: £227.5m). Group pre-tax profit (pre-exceptional) was £4.9m (2014: £11.2m), while group pre-tax profit (post-exceptional) was £2.2m (2014: £12.0m).
The terms of the compensation deal agreed with the DfT are outlined in the interims.
It states the group agreed specific compensation payments and of these, £11.9m was received in the period (2014: £2.7m) and a final compensation payment of £10.3m has been agreed with HS2 which is to be paid in December 2015.
The costs of the move to the new site, including the IT data centre move and related staff costs have now been largely incurred, it adds.
The group made a profit of £1.1m on the sale of the Bromford hub and received a part-compensation payment of £6.8m.
However, relocation costs amounted to £6.7m, with the cost of automated implementation coming out at £0.7m. Impairment charges added £3.2m.
Guy Buswell, Chief Executive Officer of UK Mail, said: “The current period of major investment and transition will deliver significant long term benefits. However, as we advised in August, it has become clear that the near-term challenges associated with the transition have been more significant than first anticipated.
“Trading in the initial weeks of the second half, and overall trends within our individual businesses, have been in line with our revised expectations. Our expectations for the current year therefore remain in line with previous guidance. However, due to the timescales required to fully resolve the challenges, our expectations for the next financial year have softened slightly.
“Whilst this is disappointing, the strategic rationale for the transformation we are undertaking is as compelling as ever, and we are confident both of our ability to restore our parcels business to previous levels of profitability and to build from there. The medium term operational and financial benefits will place us amongst the most efficient and competitive operators in our market.”
