Irregular parcels put UK Mail out of shape

The Times reports that its shares fell by 10 per cent, sliding 75p to 455p, after it admitted that switching its hub from Birmingham to a fully-automated facility in Coventry had proved challenging.

While parcel volumes in the first four months of the year had risen by 4 per cent year-on-year, the move had “caused a greater level of customer churn and loss of volume than anticipated, with an associated adverse impact on parcels revenue mix”. A spokesman said that the new state-of-the-art sorting equipment had struggled to cope with the volume of “irregular-shaped parcels”, forcing it to handle a larger proportion manually and incurring extra operating costs.

The company, which competes with Royal Mail in parcel deliveries, had been expected by analysts to make pre-tax profits this year of about £20 million. However, it said that it now expected profits to be “materially below current market expectations” at between £10 million and £12 million, while there would be “some continuing impact into the first half of the next financial year”.

Although operating in a crowded market, UK Mail had hoped that the £20 million investment in the new facility would give it an edge over its competitors. As recently as April, it said that the site was on budget and on schedule, and testing was going well.

That reassurance carried a sting in the tail, however, it was forced to admit that its profits had been hit by the collapse of City Link, because it had been unable to cope with the resulting surge of new customers.

Guy Buswell, the chief executive of UK Mail, admitted that the latest setback was “clearly very disappointing”, but insisted that he and his colleagues were “taking decisive action to address these issues. We are confident that they can be reversed.”

Mr Buswell said that the “longer-term opportunities for the group are substantial” and that the new hub would play a crucial role in delivering on that promise.

The company said that it was reviewing its customer base to assess the likely volumes of irregular-shaped parcels with a view to increasing charges.

While its parcel delivery business may be struggling, he said that its so-called access mail business — where the final delivery is carried out by Royal Mail — had continued to perform well, with volumes up about 6 per cent in the four-month period amid an increase in its market share.

Yesterday’s trading update was the third profit warning in 11 months for UK Mail, which in September last year admitted that its pallets business was suffering increasing network costs. It has since sold the business.