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UK Mail Group PLC (UKM)

  Print      Mail a friend       Annual reports

Wednesday 16 November, 2011

UK Mail Group PLC

Half Yearly Report

RNS Number : 1527S
UK Mail Group PLC
16 November 2011
 



 

 

16 November 2011

UK MAIL GROUP plc

 

INTERIM RESULTS

For the 6 months ended 30 September 2011

 

Highlights

 

·     Group revenues up 5.7% to £201.6m (2010: £190.7m)

 

·     Mail revenues up 9.2% to £93.8m (2010: £85.9m)

 

·     Parcels revenues up 3.0% to £83.5m (2010: £81.0m)

 

·     Group profit before tax (before exceptional items) £6.8m (2010: £7.4m) reflecting a reduction in margins and the impact of one less working day

 

·     Exceptional items of £0.8m (2010: £nil) relating to restructuring costs

 

·     Group profit before tax of £6.0m (2010: £7.4m)

 

·     Strong balance sheet, net cash at period end of £11.6m (2010: £8.5m)

 

·     Interim dividend maintained at 6.4p per share (2010: 6.4p)

 

·     Launch of new consumer focused online parcel delivery service - www.ipostparcels.com 

 

Guy Buswell, Chief Executive Officer of UK Mail, said:-

 

"The Group saw a satisfactory first quarter followed by a more challenging second quarter for the markets in which we operate. These conditions have continued into the third quarter to date and we assume that the economic environment will remain tough throughout the current financial year.

 

"Our mail business remains a market leader with an operational template that is ideally suited to adapt to the demands of an evolving market, and our parcels business maintains a good position compared to its key competitors, thanks to the benefits of our low-cost network and the industry-leading services we are continuing to introduce. 

 

"Our strategy remains to continue to build competitive advantage, developing and investing in our low cost integrated network, driving down cost, investing in IT infrastructure and bringing to market new products and services to drive profitable revenue growth." 

 

For further information, please contact:

 

UK Mail Group plc


  Guy Buswell, Chief Executive Officer

0121 335 1111

  Steven Glew, Group Finance Director

 

01753 706 070

MHP Communications


  John Olsen

Ian Payne

Giles Robinson

020 3128 8100



 

Introduction

 

The performance in the first half of the year comprised a satisfactory trading performance in the first quarter and a more challenging second quarter.

 

Reported Group revenues for the first half increased 5.7% compared to the same period in the previous year.  Adjusting for the increase in Royal Mail prices implemented on 6 May 2011, offset by there having been one less working day than in the previous year, underlying Group revenues increased by 2.0%.

 

Our Mail business grew its revenues on a reported basis; on an underlying basis, revenues were in line with the same period in the previous year.  Underlying Mail operating profit reduced compared to the prior year as the continued competitive pricing environment led to a slight reduction in the operating margin.  Our Mail business remains well positioned in its market with a healthy pipeline of new business opportunities.  We saw good progress from our new product areas of imail and packets and these should have a beneficial impact on operating margins in the future.

 

Parcels revenues continued to grow compared to the same period in the previous year reflecting the benefit of recent customer wins, albeit in a pricing environment that remains challenging and with a continuation of the volume mix seen in the second half of the last financial year.  This mix effect has impacted the parcels operating margin and the underlying parcels operating profit.  We continue to focus on innovation and improving our operational efficiency to help offset the effects of a challenging market.

 

In our Courier business, contract wins from the prior period helped deliver revenue and profit growth. 

 

Our Pallets business has performed well in a market that remains challenging, with revenues showing a slight decrease on the same period last year but a good increase in operating profit as a result of strong operational management.

 

Overall, Group revenues at £201.6m were up 5.7% compared to the prior year and Group profit before tax before exceptional items at £6.8m was down £0.6m on the previous year, although £0.5m of this decrease is a result of there being one less working day.

 

We have taken further action to reduce the fixed costs of our business. We have closed two depots, reducing our total number of mail/parcels sites to 52. Along with some restructuring in a number of other areas of our business, this has resulted in one off costs of £0.8m. We will continue to monitor closely the potential for further opportunities to reduce our fixed cost base as the year progresses.

 

We continue to invest in our I.T. systems to develop increased capability and further enhance the customer services we can provide; to this end we have recently successfully completed a significant upgrade to our hardware platform, on time and on budget.

 

We remain highly focused on innovation to continue expanding the size of the markets available to us and to further increase our share of those markets.  We are continuing to introduce new products and services across both our Mail and Parcels businesses, a number of which are already available to customers and gaining valuable traction.

 

Our financial position remains strong, with net cash at the period end of £11.6m, compared to £8.5m as at 30 September 2010.

 

 

 

Results

 

The results can be summarised as follows:


Six months ending 30 September


2011

 £m


2010

£m


Inc/(Dec) %







Group revenue

201.6


190.7


5.7%







Operating profit

6.0


7.5


(18.4)%

Net finance costs

-


(0.1)


100.0%

Profit before taxation

6.0


7.4


(18.2)%

Taxation

(1.6)


(2.1)


23.2%

Profit after taxation

4.4


5.3


(16.2)%







Basic earnings per share

8.1p


9.6p


(16.1)%

Underlying basic earnings per share

9.1p


9.6p


(5.4)%

 

Revenue and operating profit are analysed as follows:

 


Revenue


Operating Profit


2011

     £m


2010

     £m


     Inc/

    (Dec)

      %


2011

£m


2010

£m


   Inc/

  (Dec)

     %













Mail

93.8


85.9


9.2%


5.0


5.6


(9.3)%

Parcels

83.5


81.0


3.0%


5.6


6.5


(14.0)%

Courier

10.1


9.5


6.4%


1.2


1.0


19.6%

Pallets

14.2


14.3


(0.2)%


1.0


0.9


14.7%

Total

201.6


190.7


5.7%


12.8


14.0


(7.9)%













Central costs







(6.0)


(6.5)


7.6%

Operating profit before exceptional items


6.8


7.5


(8.1)%

 

Mail

 

Mail showed further growth in revenues of 9.2% to £93.8m (2010: £85.9m).  The Mail revenue growth includes the impact of the Royal Mail price increase on 6 May 2011, which will increase prices by some 15% on an annualised basis.  On an underlying basis, also adjusted for the reduction in working days, revenues were in line with the prior year at £86.0m.

 

Within the overall UK mail market, there has been a decline in transactional volumes of some 4% per annum in recent years. An important factor in the continued progress of our Mail business is therefore product innovation, to open up new segments of the mail market and extend our reach.

 

imail, our web-to-print postal service, continues to grow successfully.  We are continuing to develop this product to support its market leadership and have recently launched a new easy-to-use web site, which includes many new features, such as data management.  Average daily volumes in September 2011 were double those of a year ago.  We have a healthy pipeline of new opportunities for this product as we identify new areas where it can be applied successfully.

 

Our Packets product enables us to offer customers a price competitive service in a segment of the postal market that is still growing well, mainly due to the continuing rise in internet-based shopping and we continue to add customers. We have now widened the service offering to the SME market, where we see a strong opportunity.

 

Mail operating profits were down 9.3% to £5.0m (2010: £5.6m). The operating margin reduced to 5.4% (2010: 6.5%), of which some 0.9% is the mathematical result of the 15% price increase imposed by Royal Mail.  The pricing environment in the transactional mail market remains very competitive.  Overall, mail volumes on a daily basis were in line with the previous year.

 

The Act for the privatisation of Royal Mail was enacted in June 2011.  One of the key outcomes of the Act is that Ofcom replaced Postcomm as the mail industry regulator in October 2011, a move which we support.  In October 2011 Ofcom issued a consultation document concerning their proposals for Mail regulation from April 2012.  In this document Ofcom stated the importance of access remaining in the future because of the benefits it has brought to the universal service, helping to improve efficiency incentives at Royal Mail, reducing prices for customers and helping to bring innovation to the market.  We are pleased that Ofcom is proposing to continue mandating access to the Royal Mail delivery network, with the headroom between retail and access prices protected by Ofcom.  The nature of headroom control, now referred to as 'margin squeeze protection', is likely to alter but we expect it will continue to be regulated. Given the competitive nature of our mail pricing, we do not expect any material impact on our mail margins. 

 

We will not know the effect of the new regime on mail pricing until Royal Mail announces its revised prices in early 2012.  We are currently considering the opportunities that may arise for our business once Ofcom concludes its consultation in January. UK Mail remains a market leader with an operational template that is ideally suited to adapt to the demands of an evolving market, and we will continue to focus on growing our overall volumes, by gaining additional volumes from new and existing customers and driving our new product innovations. 

 

Parcels

 

Revenues in Parcels, which comprises the Group's business-to-business, business-to-consumer and international parcel delivery service, were up 3.0% for the period to £83.5m (2010: £81.0m).  Operating profit decreased by 14.0% to £5.6m (2010: £6.5m) with the operating margin at 6.6% (2010: 7.9%).

 

Due to the fixed cost nature of our parcels business, the impact of one less working day reduced operating profit by some £0.4m with an impact on the operating margin of some 0.4%.

 

Performance was also impacted by the effect of business-to-business volume growth remaining subdued in the first half.  This was however largely offset by stronger business-to-consumer volumes, resulting in an overall volume increase in the parcels we handle of some 11%.

 

This mix effect placed pressure on margins, although this has been largely offset by the continued improvements in the efficiency and effectiveness of our Parcels operation.  We continue to be successful in winning new Parcels customers as a result of our high service levels, low-cost network and strong brand in the market.

 

We continue to drive down costs to improve the profitability of our parcels operations.  A key area of focus is our network cost where we have accelerated the plans to reduce our fixed cost base.  This has resulted in the closure of two depots, reducing our total number of sites to 52, along with restructuring in a number of support areas.

 

We have recently introduced a number of major improvements to our I.T. infrastructure.  These include the provision of industry-leading facilities to our customers, and to the recipients of the parcels they despatch via our services.  All customers can now be notified in advance of expected delivery times and given easy to use facilities if they need to re-arrange deliveries.

 

An important change we have made is to completely replace our central I.T. hardware.  This was achieved in September 2011 and it is a credit to our I.T. and operations management that such a major change was made smoothly and without impact on our operations, on time and on budget.  This change gives us much improved processing capacity which will allow us to cope with the combined volume growth we are seeing across our business and to introduce new services for our customers.

 

As part of these improvements we have also introduced a completely new internet platform which will help support business growth and drive down costs. 

 

Our Retail Logistics product which provides services tailored to the specific needs of retailers continues to make good progress.  This service is targeted at the extensive list of retail customers we have access to through our mail, parcels and courier businesses, and we now have a number of major retailers trading with us. We estimate the Retail Logistics market to be worth £1.2bn overall, supporting our view that this represents a significant growth opportunity for the business.  We have recently enhanced our service offering to include the ability to handle hanging garments, as well as providing customers with returns and inter-store transfer facilities.

 

The overall parcels market in the UK is challenging with growth linked to economic performance in a highly competitive environment.  Our target position in this market is to be a high quality operator which provides the services that customers want.  The key here is a reliable next day service, providing customers with estimated delivery windows, which can easily be re-arranged, with the strong use of I.T. to provide added information.

 

Our analysis of the parcels market has shown an increasing trend for customers to buy parcel collection and delivery services on-line, rather than through the traditional contract based approach.  This trend is partly caused by the growth of on-line transaction sites, such as ebay and Amazon Marketplace, which allow small businesses to reach their customers directly.  In response to this trend we are today launching our on-line parcel collection and delivery service, www.ipostparcels.com, which allows any new customer, be they an individual or a small business, to arrange parcel collection and delivery directly with UK Mail through an easy to use website.  We see this as a highly innovative service and a promising growth prospect for the future, making UK Mail's parcels offering more accessible to a much wider audience of small businesses and consumers.

 

Courier

 

Revenues in our Courier business, which provides same-day delivery services, increased 6.4% to £10.1m (2010: £9.5m).  Operating margins increased to 11.8% (2010: 10.5%) leading to an increase in operating profit to £1.2m (2010: £1.0m).  The increase in operating margin reflects the actions we have taken to improve effectiveness and reduce overheads in the business.

 

We have now developed a highly efficient nationwide courier network with a proven ability to support national contracts, which adds to our ability to offer a fully integrated proposition and supports product development across the Group. 

 

 

Pallets

 

Revenues in our Pallets business, which provides a nationwide palletised goods delivery service,decreased by 0.2% for the period to £14.2m (2010: £14.3m). We have however again improved the efficiency of our operations and reduced costs, leading to an improvement in the operating margin to 7.2% (2010: 6.3%).  This improved margin led to an increase in operating profit for the period of 14.7% to £1.0m (2010: £0.9m).

 

This business has performed well in a market that remains challenging.

 

We see growth opportunities for this business and will continue to focus on sectors of the distribution market which are best placed to benefit as the economy recovers.

 

 

Exceptional Items

 

As previously indicated the Group has taken action to reduce its fixed cost base.  As a result we have incurred exceptional costs of £0.8m (2010: £nil).  The actions involved a number of initiatives including a reduction in headcount and the closure of two sites, resulting in redundancy costs of £0.6m and property related costs of £0.2m.

 

Finance costs

 

Net interest payable reduced to nil (2010: £0.1m).  Our finance costs continue to reduce as our cash balance improves and we repay debt.

 

Cash Flow and Balance Sheet

 

The Group has a strong balance sheet with net cash at the end of the period of £11.6m (2010: £8.5m). 

 

Net cash inflow from operating activities totalled £3.9m (2010: £3.2m). Net cash outflow for the period was £7.2m (2010: £8.6m) which included £5.2m (2010: £6.2m) of cash consumed in working capital, reflecting the normal first half trend in our business. We expect a substantially smaller outflow for the year as a whole.

 

Capital expenditure for the period was £3.4m (2010: £4.1m).  The capital expenditure for the period includes £2.2m on IT, as we continue to develop our systems infrastructure, and £1.0m on our network.

 

Earnings per share

 

Basic earnings per share decreased 16.1% to 8.1p (2010: 9.6p).  The underlying basic earnings per share, excluding the impact of exceptional items, decreased 5.4% to 9.1p (2010: 9.6p).

 

Dividend

 

The Board has declared an unchanged Interim Dividend of 6.4p (2010: 6.4p), to be paid on 13 January 2012 to shareholders registered on 2 December 2011.  

 

CURRENT TRADING & OUTLOOK

 

The more challenging conditions experienced in the second quarter have continued into the third quarter to date, reflecting depressed end-consumer activity, and we continue to assume that economic conditions will remain tough throughout the current financial year.

 

We expect a continued decline in underlying mail volumes in the UK market, exacerbated by the price increases imposed by Royal Mail.  This and continuing regulatory reform will represent challenges but also new opportunities, and UK Mail's business model is ideally suited to enable us to adapt as the market evolves. We will maintain our focus on winning additional mail volumes from new and existing customers and driving the growth opportunities presented by our new product developments.

 

The parcels market will remain challenging and highly competitive, but we believe our focus on key customer segments such as Retail Logistics and new product innovations such as ipostparcels.com will allow us to make further progress in the future. Our parcels business remains in a good position compared to its key competitors thanks to the benefits of our low-cost network and the industry-leading services we are continuing to introduce. 

 

Our strategy remains to continue to build competitive advantage, developing and investing in our low cost integrated network, driving down cost, investing in IT infrastructure and bringing to market new products and services to drive profitable revenue growth.  By capitalising on our leadership and differentiated positioning, we aim to increase both the size of the markets available to us and our share of those markets, and to take advantage of any opportunities that arise as those markets evolve.

 

 

 

 

Guy Buswell

Chief Executive Officer



ADDITIONAL DISCLOSURES

Principal risks and uncertainties facing the business

 

UK Mail's business and share price may be affected by a number of risks, not all of which are within our control. The process UK Mail has in place for identifying, assessing and managing risks is set out in the Corporate Governance Report on page 21 of the 2011 Annual Report and Accounts. The specific principal risks and uncertainties that may affect the Group's performance, together with relevant mitigating factors as identified by the Group's risk management process were discussed on page 15 of the Group's 2011 Annual Report and Accounts. These included risks relating to IT systems, business continuity, legislation and regulation, competition and fuel factors, in addition to financial risks including credit risk. It is considered that these still remain the most likely areas of potential risk and uncertainty, with the position unchanged from that set out in the 2011 Annual Report and Accounts.

 

Cautionary statement

 

This interim announcement contains certain forward-looking statements, which have been made by the directors in good faith based on the information available to them up to the time of the approval of this report and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. Nothing in this report should be construed as a profit forecast.

 

Going concern

As stated in note 2 to the condensed consolidated interim financial statements, the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. 

 

 



 

 

Consolidated Statement of Comprehensive Income





for the six months ended 30 September 2011


































Unaudited

Six months to 30 September

2011

£m


Unaudited

Six months to 30 September

2010

£m


Audited

Year to

31 March

2011

£m


























Note












Continuing operations








Revenue

5

201.6


190.7


395.8


Cost of sales


(178.4)


(166.8)


(347.3)


Gross profit


23.2


23.9


48.5


Administrative expenses



(16.4)


(16.4)


(32.3)


Operating profit before exceptional items



6.8


7.5


16.2


Exceptional administrative items


6

(0.8)


-


-


Operating profit


5

6.0


7.5


16.2


Finance costs


(0.1)


(0.1)


(0.2)


Finance income


0.1


-


0.1


Profit before taxation



6.0


7.4


16.1


Taxation before exceptional items



(1.8)


(2.1)


(4.5)


Exceptional taxation items



0.2


-


-


Total taxation


12

(1.6)


(2.1)


(4.5)


Profit for the period


4.4


5.3


11.6












Total comprehensive income attributable to:








Equity holders of the company


4.4


5.3


11.6












Basic earnings per share

13

8.1p


9.6p


21.2p


Diluted earnings per share

13

8.0p


9.3p


21.1p












The notes on the following pages form an integral part of these condensed consolidated interim financial statements

 













 



 

Consolidated Balance Sheet





at 30 September 2011














Unaudited

30 September

2011

£m


Unaudited

30 September

2010

£m


Audited

31 March

2011

£m






















Note




Assets









Non-current assets









Goodwill


7

9.5


9.5


9.5


Intangible assets


7

3.6


2.8


3.2


Investment properties


7

0.9


1.0


0.9


Property, plant and equipment


7

35.9


37.6


37.0


Deferred tax assets



0.4


0.5


0.5





50.3


51.4


51.1


Current assets









Inventories



0.3


0.2


0.2


Trade and other receivables



55.9


54.1


56.7


Cash and cash equivalents


10

15.2


13.9


22.4





71.4


68.2


79.3


Liabilities









Current liabilities









Borrowings


10

(1.8)


(1.8)


(1.8)


Trade and other payables



(53.8)


(50.5)


(58.8)


Current tax liabilities



(1.3)


(2.1)


(1.9)


Provisions


11

(0.1)


(0.2)


(0.1)





(57.0)


(54.6)


(62.6)











Net current assets



14.4


13.6


16.7











Non-current liabilities









Borrowings


10

(1.8)


(3.6)


(3.2)


Deferred tax liabilities



(3.1)


(3.1)


(3.0)


Provisions


11

(0.3)


(0.4)


(0.5)





(5.2)


(7.1)


(6.7)











Net assets



59.5


57.9


61.1











Shareholders' equity









Ordinary shares


8

5.5


5.5


5.5


Share premium


8

16.8


16.6


16.7


Retained earnings



37.2


35.8


38.9


Total shareholders' equity



59.5


57.9


61.1











 



 

Consolidated Statement of Cash Flows



for the six months ended 30 September 2011




















Unaudited

Six months to 30 September

2011

£m


Unaudited

Six months to 30 September

2010

£m









Audited

Year to

31 March

2011

£m













Note




Continuing operations








Operating activities







Cash generated from operations

9

6.1


5.5


24.2


Finance income received

0.1


-


0.1


Finance costs paid

(0.1)


(0.1)


(0.2)


Taxation paid

(2.2)


(2.2)


(4.8)


Net cash inflow from operating activities

3.9


3.2


19.3










Investing activities







Proceeds from disposal of property, plant and equipment

7

-


0.1


0.1


Purchase of property, plant and equipment

7

(2.4)


(2.9)


(5.7)


Purchase of intangible assets

7

(1.0)


(1.2)


(2.1)


Net cash outflow from investing activities

(3.4)


(4.0)


(7.7)










Financing activities







Dividends paid to shareholders

14

(6.4)


(6.4)


(9.9)


Repayment of finance lease liabilities

10

(0.4)


(0.4)


(0.8)


Net proceeds from issue of ordinary share capital


0.1


-


0.1


Purchase of UK Mail shares by the ESOT


-


-


(0.1)


Repayment of borrowings

10

(1.0)


(1.0)


(1.0)


Net cash outflow from financing activities

(7.7)


(7.8)


(11.7)










Net decrease in cash and cash equivalents

10

(7.2)


(8.6)


(0.1)


Cash and cash equivalents at the start of the period

10

22.4


22.5


22.5


Cash and cash equivalents at the end of period

10

15.2


13.9


22.4










 



 

Consolidated Statement of Changes in Shareholders' Equity (unaudited)

for the six months ended 30 September 2011












Attributable to equity holders of the company



Ordinary

shares

£m


Share

premium

£m


Retained

earnings

£m


Total

equity

£m







Note













Balance as at 1 April 2011


5.5


16.7


38.9


61.1

Dividends paid to shareholders

14

-


-


(6.4)


(6.4)

Employees' share option scheme:









- value of employee services


-


-


0.3


0.3

- exercise of share options

8

-


0.1


-


0.1

Profit for the period


-


-


4.4


4.4

Balance as at 30 September 2011


5.5


16.8


37.2


59.5










Balance as at 1 April 2010


5.5


16.6


36.4


58.5

Dividends paid to shareholders

14

-


-


(6.4)


(6.4)

Employees' share option scheme:









- value of employee services


-


-


0.4


0.4

- tax on employee share options


-


-


0.1


0.1

Profit for the period


-


-


5.3


5.3

Balance as at 30 September 2010


5.5


16.6


35.8


57.9










Balance as at 1 April 2010


5.5


16.6


36.4


58.5

Dividends paid to shareholders

14

-


-


(9.9)


(9.9)

Purchase of UK Mail shares by the ESOT


-


-


(0.1)


(0.1)

Employees' share option scheme:









- value of employee services


-


-


0.9


0.9

- exercise of share options


-


0.1


-


0.1

Profit for the period


-


-


11.6


11.6

Balance as at 31 March 2011


5.5


16.7


38.9


61.1











 



 


Notes to condensed consolidated interim financial statements





1

General information








UK Mail Group plc ('the Company') and its subsidiaries (together 'the Group') are engaged in the provision of express collection and delivery services for mail, parcels and palletised goods.








The Company (Registered No. 02800218) is a public limited liability company incorporated and domiciled in England. The address of its registered office is 464 Berkshire Avenue, Slough, Berkshire, SL1 4PL. The Company is listed on the London Stock Exchange (LSE:UKM).








The condensed consolidated interim financial statements were approved for issue on 15 November 2011.











The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Within the notes to these financial statements the half year periods to 30 September 2011 and 2010 are unaudited. Statutory accounts for the year ended 31 March 2011 were approved by the Board of directors on 17 May 2011 and delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or (3) of the Companies Act 2006.








2

Basis of preparation









The condensed consolidated interim financial statements for the half year ended 30 September 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. They do not include all of the information and disclosures required for full annual financial statements, and should be read in conjunction with the consolidated annual financial statements of the Group as at and for the year ended 31 March 2011, which were prepared in accordance with IFRSs as adopted by the European Union.









The consolidated financial statements of the Group as at and for the year ended 31 March 2011 are available upon request from the Company's registered office at 464 Berkshire Avenue Slough, SL1 4PL or at www.ukmail.com.









The condensed consolidated interim financial statements are presented in Sterling.










After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Group meets its day to day working capital requirements through operating cash flows, with borrowings in place to fund acquisitions and capital expenditure. Movements in the Group's overall net cash position are shown in note 10. The Group also has £12m of undrawn committed facilities, which are in place until 30 June 2012. Accordingly they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.









3

Accounting policies










Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated annual financial statements as at and for the year ended 31 March 2011.




During the period the Group has adopted the following new standards, amendments to standards or interpretations, which are mandatory for the first time for the financial year beginning 1 April 2011.










 

IAS 1 (revised), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2011











 

IAS 24 (revised), 'Related party disclosures', effective for annual periods beginning on or after 1 January 2011











IAS 27 (amendment), 'Consolidated and separate financial statements', effective for annual periods beginning on or after 1 July 2010











 

IAS 34 (amendment), 'Interim financial reporting', effective for annual periods beginning on or after 1 July 2011











 

IFRIC 13 (amendment), 'Customer loyalty programmes', effective for annual periods beginning on or after 1 January 2011











 

IFRIC 14 (amendment), 'Pre-payments of a minimum funding requirement', effective for annual periods beginning on or after 1 January 2011











 

IFRIC 19, 'Extinguishing financial liabilities with equity instruments', effective for annual periods beginning on or after 1 July 2010











 

IFRS 1 (amendment), 'First time adoption on financial instrument disclosures', effective for annual periods beginning on or after 1 January 2011











IFRS 3 (revised), 'Business combinations', effective for annual periods beginning on or after 1 July 2010










 

IFRS 7 (amendment), 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2011










The adoption of these standards and interpretations had no material impact on the Group.


The following new standards, interpretations and amendments have been issued, but are not effective for the financial year beginning 1 April 2011 and have not been early adopted:









 

IAS 1 (revised), 'Presentation of financial statements', effective for annual periods beginning on or after 1 July 2012





IAS 12 (revised), 'Income taxes', effective for annual periods beginning on or after 1 January 2012





IAS 19 (amendment), 'Employee benefits', effective for annual periods beginning on or after 1 January 2013





 

IAS 27 (amendment), 'Consolidated and separate financial statements', effective for annual periods beginning on or after 1 January 2013





 

IAS 28 (revised), 'Investments in associates and joint ventures (as amended in 2011)', effective for annual periods beginning on or after 1 January 2013





 

IFRS 1 (amendment), 'First time adoption of IFRS - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters', effective for annual periods beginning on or after 1 July 2011





 

IFRS 7 (amendment), 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 July 2011





IFRS 9, 'Financial instruments', effective for annual periods beginning on or after 1 January 2013





 

IFRS 10, 'Consolidated financial statements', effective for annual periods beginning on or after 1 January 2013









IFRS 11, 'Joint arrangements', effective for annual periods beginning on or after 1 January 2013









IFRS 12, 'Disclosure of interests in other entities', effective for annual periods beginning on or after 1 January 2013









IFRS 13, 'Fair value measurement', effective for annual periods beginning on or after 1 January 2013








 

 

4

Changes in accounting estimates









The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.









In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 March 2011.









There have been no material changes in contingent liabilities during the current interim period.

 

5

Segmental information









Management has determined the operating segments based on reports that are reviewed by the Board for making strategic decisions. These reports reflect the Group's defined management structure, whereby distinct managers are accountable to the Board for the results and activities of their identified segments and the different markets in which they operate. The Board considers that the Group has four reportable operating segments.









The Group's operating segments consist of Mail, Parcels, Courier and Pallet Services. Central costs comprises of network costs and central support costs.









The Group manages its business segments on a national basis, with all its operations in the UK, as are nearly all of its customers.




Inter-company transactions, balances and unrealised gains on transactions between segments are eliminated. Unrealised losses are also eliminated.









No individual customer accounted for more than 6% of revenue in the periods included in these condensed consolidated interim financial statements.









Six months ended 30 September 2011 (unaudited)








Mail

Parcels

Courier

Pallets


Group




£m

£m

£m

£m


£m











Segmental revenue

93.8

83.5

10.8

14.2


202.3


Inter-segment revenue

-

-

(0.7)

-


(0.7)


Revenue (from external customers)

93.8

83.5

10.1

14.2


201.6










Operating profit before exceptional items

5.0

5.6

1.2

1.0


12.8


Exceptional items - administrative items

-

(0.7)

(0.1)

-


(0.8)


Operating profit before central costs

5.0

4.9

1.1

1.0


12.0


Central costs





(6.0)


Operating profit





6.0


Finance costs





(0.1)


Finance income





0.1


Profit before taxation





6.0


Taxation





(1.6)


Profit for the period





4.4


 

 

 

 

 

 


Assets





Segment assets

51.6

76.8

0.1

8.1



136.6


Eliminations

(26.9)

(16.8)

-

(3.4)



(47.1)


Net segment assets

24.7

60.0

0.1

4.7



89.5


Central assets







32.2


Total assets per balance sheet







121.7














Six months ended 30 September 2010 (unaudited)






Mail

Parcels

Courier

Pallets



Group





£m

£m

£m

£m



     £m











Revenue

85.9

81.0

9.9

14.3



191.1


Inter-segment revenue

-

-

(0.4)

-



(0.4)


Revenue (from external customers)

85.9

81.0

9.5

14.3



190.7











Operating profit before central costs

5.6

6.5

1.0

0.9



14.0


Central costs

(6.5)


Operating profit

7.5


Finance costs

(0.1)


Finance income

-


Profit before taxation

7.4


Taxation

(2.1)


Profit for the period

5.3











Assets

 



 


Segment assets

46.4

65.2

0.4

6.1



118.1


Eliminations

(23.5)

(3.5)

-

(1.2)



(28.2)


Net segment assets

22.9

61.7

0.4

4.9



89.9


Central assets







29.7


Total assets per balance sheet







119.6












Year ended 31 March 2011 (audited)




Mail

Parcels

Courier

Pallets


Group




£m

£m

£m

£m


£m













181.8

166.7

20.3

28.1


396.9


Inter-segment revenue

-

-

(1.1)

-


(1.1)


Revenue (from external customers)

181.8

166.7

19.2

28.1


395.8









11.8

12.1

2.2

1.8


27.9


Central costs






(11.7)


Operating profit


16.2


Finance costs


(0.2)


Finance income


0.1


Profit before taxation


16.1


Taxation


(4.5)


Profit for the period


11.6

 


Assets

















Segment assets

48.3

83.6

0.2

7.1


139.2


Eliminations

(21.5)

(20.5)

-

(2.5)


(44.5)


Net segment assets

26.8

63.1

0.2

4.6


94.7


Central assets






35.7


Total assets per balance sheet






130.4


 




30 September

2011


30 September

2010

31 March

2011












Total segment capital expenditure

1.3


2.7

4.2


Central capital expenditure

2.1


1.4

3.6


Total capital expenditure

3.4


4.1

7.8




 


Total segment depreciation and amortisation

2.8


2.9

5.7

 


Central depreciation and amortisation

1.3


0.9

1.9

 


Total depreciation and amortisation

4.1


3.8

7.6

 



6

Exceptional items




During the period, the Group has taken action to reduce its fixed cost base, at a cost of £0.8m (2010: £nil). The actions involved a number of initiatives including a reduction in headcount and the closure of two sites, resulting in redundancy costs of £0.6m and property related costs of £0.2m.



7

Property, plant and equipment and intangible assets




Six months ended 30 September 2011 (unaudited)

£m


Opening net book value at 1 April 2011



50.6


Additions



3.4


Disposals



-


Depreciation and amortisation



(4.1)


Closing net book value at 30 September 2011



49.9



Six months ended 30 September 2010 (unaudited)

£m


Opening net book value at 1 April 2010



50.6


Additions



4.1


Disposals



-


Depreciation and amortisation



(3.8)


Closing net book value at 30 September 2010



50.9

 


Year ended 31 March 2011 (audited)




£m


Opening net book value at 1 April 2010




50.6


Additions




7.8


Disposals




(0.1)


Depreciation and amortisation




(7.7)


Closing net book value at 31 March 2011




50.6

 

 

8

Share Capital















Number of


Ordinary


Share


Unaudited







ordinary


shares


premium


Total


Capital




shares


£m


£m


£m















At 1 April 2011

54,693,973


5.5


16.7


22.2


Allotted under SAYE schemes

33,723


-


0.1


0.1


At 30 September 2011

54,727,696


5.5


16.8


22.3















At 1 April 2010 and 30 September 2010

54,675,241


5.5


16.6


22.1













The Company's Employee Share Ownership Trust ('ESOT') holds shares in the Company for subsequent transfer to employees under its incentive scheme awards. Shares held by the ESOT are not voted at shareholder meetings and do not accrue dividends.  At 31 March 2011 the ESOT held a total of 127,723 shares (31 March 2010: 342,198 shares). The ESOT has neither acquired nor issued any shares during the period to 30 September 2011 (Period to 30 September 2010: 233,697 shares issued), and as a result held 127,723 shares at 30 September 2011 (30 September 2010: 108,501 shares).




During the six months to 30 September 2011, 33,723 shares were allotted to employees in respect of SAYE schemes (2010: nil).









9

Reconciliation of profit to net cash flow generated from operations













Unaudited

Six months to

30 September

2011

£m


Unaudited

Six months to

30 September

2010

£m


Audited

Year to

31 March

2011

£m


































Profit for the period

4.4


5.3


11.6


Taxation

1.6


2.1


4.5


Finance costs payable

0.1


0.1


0.2


Finance income receivable

(0.1)


-


(0.1)


Exceptional items

0.8


-


-


Depreciation and amortisation

4.1


3.8


7.7


Loss on disposal of property, plant and equipment

-


(0.1)


(0.1)


Share-based payments

0.4


0.5


1.0


Decrease/(increase) in trade and other receivables

0.8


(2.3)


(4.9)


(Decrease)/increase in trade and other payables

(5.8)


(3.8)


4.3


(Decrease)/increase in provisions

(0.2)


(0.1)


-


Net cash inflow generated from operations

6.1


5.5


24.2

 

 

10

Analysis of net cash/(debt)

 








 






Audited

At 1 April

2011

£m






Unaudited

At  30 September 2011

£m


 











 







Cash flow

£m


Other

£m


 









 













 


Cash at bank and in hand

22.4


(7.2)


-


15.2

 


Cash and cash equivalents

22.4


(7.2)


-


15.2

 










 


Debt due within one year

(1.0)


1.0


(1.0)


(1.0)

 


Finance leases due within one year

(0.8)


0.4


(0.4)


(0.8)

 


Debt due after one year

(2.0)


-


1.0


(1.0)

 


Finance leases due after one year

(1.2)


-


0.4


(0.8)

 


Debt

(5.0)


1.4


-


(3.6)

 










 


Net cash

17.4


(5.8)


-


11.6

 












 





Audited

At 1 April

2010

£m






Unaudited

At 30 September

2010

£m

















Cash flow


Other








£m


£m














 


Cash at bank and in hand

22.5


(8.6)


-


13.9

 


Cash and cash equivalents

22.5


(8.6)


-


13.9

 










 


Debt due within one year

(1.0)


1.0


(1.0)


(1.0)

 


Finance leases due within one year

(0.8)


0.4


(0.4)


(0.8)

 


Debt due after one year

(3.0)


-


1.0


(2.0)

 


Finance leases due after one year

(2.0)


-


0.4


(1.6)

 


Debt

(6.8)


1.4


-


(5.4)

 











 


Net cash

15.7


(7.2)


-


8.5

 

 







Cash flow


Other


Audited

At 31

March 2011




£m


£m


£m


£m









Cash at bank and in hand

22.5


(0.1)


-


22.4


Cash and cash equivalents

22.5


(0.1)


-


22.4










Debt due within one year

(1.0)


1.0


(1.0)


(1.0)


Finance leases due within one year

(0.8)


0.8


(0.8)


(0.8)


Debt due after one year

(3.0)


-


1.0


(2.0)


Finance leases due after one year

(2.0)


-


0.8


(1.2)


Debt

(6.8)


1.8


-


(5.0)












Net cash

15.7


1.7


-


17.4














11

Provisions for liabilities and charges










Unaudited












Total


Six months ended 30 September 2011






£m












At 1 April 2011



0.6


Utilised during the period 



(0.2)


At 30 September 2011



0.4


















Unaudited










Total


Six months ended 30 September 2010





£m











At 1 April 2010



0.6


Utilised during the period 



-


At 30 September 2010



0.6














Audited 


                                                                                                                               

Total


Year ended 31 March 2011

£m





At 1 April 2010

0.6


Utilised during the year

-


At 31 March 2011

0.6


 

 


The provision for property leases relates to dilapidations on properties under leases expiring within 1 year and up to 14 years. The properties have been inspected by the Group Property Manager, and estimates made for the anticipated dilapidation expenditure to be incurred prior to sub-letting, or reversion of the lease.

 

12

Taxation




Taxation is provided based on management's best estimate of the weighted average annual corporation tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 March 2012 is 27.0% (year to 31 March 2011: 28.8%).

 

The Finance Bill 2011, which contained legislation for some of the proposals announced by the Chancellor in the 23 March 2011 Budget, was enacted on 19 July 2011. The Bill introduced a further reduction in the rate of UK corporation tax to 25% from 1 April 2012. In accordance with accounting standards this change, which is regarded as 'substantively enacted', has been reflected in these condensed consolidated interim financial statements.



13

Earnings per share




The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.




The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.


 

 

 


Underlying earnings per share




It is the directors' view that underlying earnings per share is a fairer reflection of the underlying results of the business. The adjusted basic and diluted underlying earnings per share have been calculated excluding the exceptional items and the associated tax impact.




The underlying profit for the period is calculated as follows;







Unaudited

Unaudited

Audited





Six months to

30 September

Six months to 30 September

Year to

31 March





2011

2010

2011





£m

£m

£m







Profit after tax

4.4

5.3

11.6


Exceptional items

0.8

-

-


Exceptional taxation items

(0.2)

-

-


Underlying profit for the period

5.0

5.3

11.6







The weighted average number of shares used in the calculations are as follows;








No. of shares

No. of shares

No. of shares







Weighted average number of shares in issue

54,566,250

54,482,917

54,522,247


Dilutive effect of options

25,637

1,688,004

220,124


Diluted weighted average number of shares

54,591,887

56,170,921

54,742,371









Earnings per share - basic

8.1p

9.6p

21.2p


Earnings per share - diluted

8.0p

9.3p

21.1p


Underlying earnings per share - basic

9.1p

9.6p

21.2p


Underlying earnings per share - diluted

9.1p

9.3p

21.1p








14

Dividends




The final dividend for the year ended 31 March 2011 of 11.8p per share (2010: 11.8p) was paid on 22 July 2011. The £6.4m distribution (2010: £6.4m) is reflected in the financial statements for the six months ended 30 September 2011.









In addition, the directors propose an interim dividend of 6.4p per share (2010: 6.4p per share) payable on 13 January 2012 to shareholders who are on the register at 2 December 2011.  This interim dividend, amounting to £3.5m (2010: £3.5m) has not been recognised as a liability in these condensed consolidated interim financial statements.

 

15

Commitments and contingencies









Group capital expenditure committed, for the purchase of property, software, plant and equipment, but not provided for in these financial statements amounted to £Nil (2010: £1.1m).








16

Events occurring after the reporting period









There are no events occurring after the reporting period, other than the proposed dividend referred to in note 14

 

 

 

 

17

Related-party transactions




P Kane, a director of the Company, and members of his close family and certain family trusts, the beneficiaries of which are persons connected with P Kane, control directly and indirectly 45.7% of the issued share capital of the Company.

 

The nature of the related party transactions of the Group has not changed from those described in the Groups' 2011 Annual Report and Accounts. There were no transactions with related parties during the six months ended 30 September 2011 which have had a material effect on the results or the financial position of the Group.

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.







18

Risks and uncertainties








The specific principal risks and uncertainties that may affect the Group's performance, together with relevant mitigating factors as identified by the Group's risk management process were discussed on page 15 of the Group's 2011 Annual Report and Accounts. These included risks relating to IT systems, business continuity, legislation and regulation, competition and fuel factors, in addition to financial risks including credit risk. It is considered that these still remain the most likely areas of potential risk and uncertainty, with the position unchanged from that set out in the 2011 Annual Report and Accounts.







19

Seasonality




Historically, the Group experiences marginally greater demand for its parcels and palletised goods collection and delivery services in the second half of the year, as consignments increase in advance of the Christmas season.  Such trends are not discernible within either the mail or courier markets.



 



 

Statement of directors' responsibilities











The Interim report is the responsibility of, and has been approved by, the directors of UK Mail Group plc. The directors are responsible for preparing the Interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. The Disclosure and Transparency Rules require that the accounting policies and presentation applied to the half-yearly figures must be consistent with those applied in the latest published annual accounts, except where the accounting policies and presentation are to be changed in the subsequent annual accounts, in which case the new accounting policies and presentation should be followed, and the changes and the reasons for the changes should be disclosed in the Interim report, unless the United Kingdom Financial Services Authority agrees otherwise.


The directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34, 'Interim financial reporting', as adopted by the European Union, and that the interim management report includes a fair review of:











 

the important events that have occurred during the first six months and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year as required by DTR 4.2.7; and











 

related-party transactions that have taken place in the first six months of the current financial year and changes in the related-party transactions described in the last annual report that have materially affected the financial position or performance of the group during the first six months of the current financial year as required by DTR 4.2.8.


The directors of UK Mail Group plc are listed in the UK Mail Group Annual Report for the year ended 31 March 2011, with the exception that Trevor Jenkins retired on 31 October 2011, and Bill Spencer was appointed as a non-executive director on 1 November 2011.  A list of current directors is maintained on the UK Mail Group website: www.ukmail.com.


By order of the Board











Guy Buswell, Chief Executive




Steven Glew, Finance Director

15 November 2011





15 November 2011

 



 

Independent review report to UK Mail Group plc











Introduction


We have been engaged by the company to review the condensed consolidated interim financial statements for the six months ended 30 September 2011, which comprises the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Shareholders' Equity and related notes. We have read the other information contained in the interim management report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.


Directors' responsibilities


The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated interim financial statements included in this interim financial report has been prepared in accordance with IAS 34, 'Interim financial reporting', as adopted by the European Union.











Our responsibility


Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.


Scope of review


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.



 

Conclusion


Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated interim financial statements in the interim financial report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.






PricewaterhouseCoopers LLP

Chartered Accountants

Thames Valley

15 November 2011

 


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