UK Mail Group share price dips as firm delivers more packages but less profit

Shares in UK Mail Group slipped yesterday after the package delivery firm’s pre-tax profits fell despite a rise in overall volumes.

 

While delivery numbers for both mail and parcels rose 4.7 and 7.4 per cent respectively, the firm’s operating profits for both sectors declined as margins were squeezed. 

 

UK Mail particularly benefited from the collapse of City link, which led to a significant rise in parcel volumes in the fourth quarter. 

 

The increase in delivery volumes is part of an ongoing trend which has led to strong growth in the past five years, with the volume of parcels handled and business doubling. 

 

However, the increasing volumes have led to severe capacity constraints, which the company has sought to rectify through increased expenditure in IT and automation. 

 

Since 2010, the firm has sought to move towards a fully automated system and the number of parcels sorted automatically has risen from 20 to 80 per cent over the last five years. 

 

 

The most disappointing sector for the company was in its pallets business, which has suffered from increased competition in recent years. Ongoing problems led to a decision in January to wind down this part of the firm, which ceased to operate in March after recording an annual pre-tax loss of £10.8m compared to a £0.7m profit last year. The closure of its pallets business comes as a blow to the firm, which had spent £9.4m acquiring UK pallets in 2003.

 

Excluding exceptional items, the company recorded a 0.8 per cent increase in revenues to £485m, for the year ending 31 March. However, pre-tax profits saw a decline 4.2 per cent during the period to £21m.

 

Chief executive Guy Buswell warned the coming year would be challenging for the firm, with the roll-out of the new automation resulting in performance for the year being more weighted to the second half than usual.