Uncertainty hits letter volumes at Royal Mail

By Jo Francis, Thursday 18 May 2017

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Parcel volumes are up at Royal Mail but business uncertainty has hit letter volumes, with marketing mail revenue substantially down.

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Letter volumes were down 6%

In its results for the year to 26 March, Royal Mail Group posted sales up 5.7% to £9.8bn, although the group said the underlying increase was 1%.

Chief executive Moya Greene said that in its UK Parcels, International & Letters division parcel volumes and revenues increased by 3%, while letter volumes fell by 6%, and total letter revenues were down 5% at £4.3bn. This excluded election mailings related to last year’s EU Referendum.

“We are seeing the impact of overall business uncertainty in the UK on letter volumes, in particularly on advertising and business letters,” Greene said, describing marketing mail as “sensitive to changes in economic activity”

Marketing mail revenues fell by 8% to just over £1bn.

She said the outlook for addressed letter volume decline – again excluding election mailings – was expected to be between 4-6% per annum in the medium term, but was likely to be at the higher end in the current financial year “if the current climate of business uncertainty persists”.

The short run-up to the upcoming general election also means election mailing revenue is expected to be lower than in the prior year.

Greene also revealed that Royal Mail has stopped more than 700,000 items suspected of being ‘scam mail’ as part of its plan to tackle rogue mail, and has changed its terms and conditions for retail customers as part of this programme.

It is also actively promoting the value of mail through a number of initiatives, including MarketReach and the Strategic Mailing Partnership.

In its parcels business, Royal Mail is targeting high-growth e-tail customers and said its GLS business on the continent was “performing well” with sales up 9% to €2.5bn (£2.1bn).

Greene said the group’s overall cost avoidance plans were on track, with Royal Mail reducing managerial layers, improving productivity and cutting circa £225m of costs last year.

In her review, she also highlighted ongoing issues around the Universal Service Obligation, and said Royal Mail was disappointed about Ofcom’s response to Royal Mail’s call for a “proactive framework” to help sustain it.

The group also hit out at the so-called gig economy and described its own workforce as having “the best terms and conditions in the industry”.

Greene said a level playing field was needed. “We welcome the UK Government’s focus on employment models, and in particular the Taylor Review. We believe there is a public policy issue around fictitious self-employment and poor labour standards in the delivery sector,” she stated.

In the group’s reported results, operating profits including ‘transformation costs’ increased from £294m to £353m. The group’s adjusted results, which exclude its substantial pension charge and other items, operating profit before transformation costs fell by 6% to £712m.

Net debt increased by £114m to £338m following the acquisitions of GSO and Postal Express.

The consultation over Royal Mail’s proposal to close the Royal Mail Pension Plan to future accrual closed on 10 March. Unions have threatened strike action over the move.

The full year dividend increased by 4% to 23p. Royal Mail’s share price rose by 6.6p, to 437.8p on the results.

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