UK Mail to deliver on profit targets despite revenue miss

After an eventful year, UK Mail Group said it would report lower revenues than expected but that profits would hit target.

A trading statement for the year to 31 March revealed revenues are likely to be down 1% on the previous 12 months, short of house broker Investec's forecast of 3% growth.

Revenues from the mail business are expected to fall by 3%, compared to expectations of 0.7% despite volumes rising 5%, due to a continued mix effect.

Parcels volumes only rose 4% after growth in the fourth quarter suffered in comparison to the spike the previous year when rival City Link collapsed. This implied Parcel revenues will be up 2%, Investec said.

The new automated parcel-sorting hub in Ryton, where the transition process brought long-time chief executive Guy Boswell's tenure to a premature end in November, was said to be operating well with good throughput levels.

"We are making further progress with our plans to improve the efficiency of our network in markets that remain highly competitive," UK Mail said, also confirming new operations director Peter Fuller joined on Tuesday.

Investec said that profits would hit target as a result of strong cost control and the change in mail mix impacting revenues rather than returns.

It cut its 2016 revenue forecasts 4% and 2017 by 5% to reflect the volume data and changes to mix, but made no changes to normalised operating profit, PBT or EPS numbers.

"UK Mail’s low leverage and high dividend yield should also support the share price during this time of operational recovery," analysts wrote.

Shares in the company were 0.78% higher at 292.25p by 0930 BST on Wednesday, close to their highest level in 2016 but well off the 500p levels last seen in August.