By Noor Zainab Hussain
(Reuters) - Connect Group Plc (L:CNCTC) unveiled e-commerce giant Amazon.com Inc (O:AMZN) as its first customer for a new same-day parcel delivery service in the UK, sending its shares up more than 18 percent.
Connect Group, formerly known as Smiths News Plc, has sought to cut dependence on newspaper and magazine distribution as circulations drop.
The Pass My Parcel service, launched on Wednesday, will use the company's existing distribution network to deliver packages to about 550 stores by Christmas, Chief Executive Mark Cashmore told Reuters.
"Working with Amazon is a real vote of confidence," he said in an interview after Connect reported full-year results.
Connect aims by 2016 to generate at least half of its profit from businesses other than newspaper and magazine wholesaling, which accounted for 77 percent of the group's underlying profit in the year ended Aug. 31.
"Click and collect" delivery, which allows customers to order goods online and pick them up at a nearby store, is the fastest growing sector within Britain's 3 billion-pound-a-year business consumer parcel market," Cashmore said.
"We know that over 40 percent of households are empty during the day, so home deliveries are not always convenient," he said.
Customers using Pass My Parcel will receive a pincode by email, which they can use to collect the parcel.
The new delivery service offers twice-daily distribution. Orders placed before 11:45 a.m. can be collected from 4:00 p.m. the same day - its fastest pick-up service, Amazon said in a statement on its UK website. (http://bit.ly/1z9K6qI)
Amazon also uses postal operators such as Royal Mail Plc (L:RMG), Whistl and Yodel to deliver packages in the UK. Growing competition prompted Royal Mail in July to cut its revenue expectations from parcel deliveries.
Connect on Wednesday reported underlying pretax profit of 50 million pounds for the year ended Aug. 31, a marginal rise from the previous year as its newspaper division benefited from price rises and a boost from the soccer World Cup.
Cashmore said he expected Connect's new delivery service to bring in a profit of between 5 million pounds and 10 million pounds over the next three years.
He said a further 1,000 stores would be added to the service within 12 months.
"This is an exciting development, which should help investors shake off some of the concerns that caused the share price to recede earlier in the year," WH Ireland analyst Nick Spoliar wrote in a note.
Connect Group's stock fell 31 percent between the beginning of the year and Tuesday's close. Its shares were up 18.1 percent at 163.41 pence at 1146 GMT (12.46 p.m. BST).
(Editing by Gopakumar Warrier and Robin Paxton)