UK Mail delivers profit warning as new sorting machines struggle with parcels

7th Aug 2015 08:47

(ShareCast News) - UK Mail has posted a profit warning despite an increase in letters and parcel volumes, as this resulted in an increased level of customer churn.Profits for the full year are now expected to be "materially below current market expectations", with profit before tax 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.The postal group has suffered hitches with its new fully automated facility in Coventry struggles to cope with many of the parcel sizes, which were said to be "incompatible" with its new automated sorting equipment.Although parcel volumes for the first four months of the new financial year have been 4% ahead of the comparable period last year, this was said to have caused "a greater level of customer churn and loss of volume than anticipated, with an associated adverse impact on parcels revenue mix".This therefore has delayed the full anticipated benefits from automation.Chief executive Guy Buswell said: "This near-term setback to our financial performance is clearly very disappointing. However we are taking decisive action to address these issues and we are confident that they can be reversed."He stood by the move to full automation, "the largest strategic development in our corporate history" and said the rationale remained "compelling", with anticipated financial and operational benefits from the new hub and increased automation still expected be achieved "in the medium term".On the upside, the letters business has continued to perform well, with volumes up by some 6% during the four-month period, with market share gained via the winning of several major contracts.The pipeline of further contracts remains encouraging as a significant number of its competitor's contracts are soon to be put out to tender.UK Mail added that its packets initiative made further good progress, with a strong pipeline of opportunities.