Delivery Firm Counts Cost Of Botched Move

Delivery firm UK Mail (LSE: UKM.L - news) posted an 81% fall in first-half profits as it counted the cost of its troubled move to a new automated warehouse, which has struggled coping with odd-shaped parcels.

The business took a £10.6m hit to account for relocation and equipment costs as well as the write-off of software that did not fit with its needs.

Pre-tax profits for the six months to the end of September tumbled to £2.2m compared to £12m in the same period last year. Shares (Berlin: DI6.BE - news) fell by nearly a fifth in early trading as the company also pared back its half-year dividend.

UK Mail had already warned of problems relating to its move in July from headquarters in Birmingham to a new facility at Ryton-on-Dunsmore near Coventry.

In its latest update it said there were challenges "relating to inefficiencies both in the new hub and in our transport network" and that a detailed plan was in place to address them, but that it would take longer than originally anticipated.

Chief executive Guy Buswell said expectations for the current financial year remained in line with previous guidance but said that "due to the timescales required to resolve the challenges" expectations for the next year "have softened slightly".

The business, which began life as a Harrow taxi firm in 1971, said its move was "the single most important strategic development in the group’s history". But it said it expected to take another 12 months to resolve fully the problems at the new hub.

Operating profits at its parcels unit plunged 38% to £7.9m as revenue growth partly boosted by the growth of online shopping was offset by higher costs. Mail profits fell 17% to £5.1m as the business increased revenues but at the expense of profit margin in a "highly competitive" market.

The results come a day ahead of half-year figures from larger rival Royal Mail (LSE: RMG.L - news) – which is expected to post a fall in profits amid declining letter volumes, and faces a regulatory review that could cap prices.

Meanwhile, Royal Mail said it was to buy same-day delivery firm eCourier as it looks to strengthen its presence in the rapidly growing sector.