Royal Mail highlights cost improvements as competition hits parcel revenues

Simon Nias
Thursday, May 21, 2015

Royal Mail blamed increased competition for "lower than anticipated UK parcel revenue" in its results for the year to 29 March 2015.

In the UK, the postal operator reported a £28m increase in total adjusted parcels revenue to £3.2bn; however, this was not enough to offset the £58m decline in total adjusted letters revenue of £4.6bn.

As a result, UK Parcels, International & Letters (UKPIL) revenues were down marginally, dropping £30m to £7,757m. The decline in letter revenues was in spite of a 5% increase in marketing mail revenues, which rose from £1.1bn to £1.2bn.

Royal Mail said that the rise in marketing mail revenue was the result of the improved economic condition in the UK together with its own MarketReach programme, which aims to promote the value of marketing mail.

Internationally, the group's GLS delivery service, which gets the bulk of its revenues (70%) from Germany, France and Italy, reported a turnover from continuing operations of £1.6bn and a pre-tax profit of £69m (2014: £1.6bn and £102m).

Royal Mail Group revenue was £9.3bn for the 52-week period (2014: £9.4bn), while operating profits before transformation costs and other exceptional items were £611m (2014: £669m).

Pre-tax profit of £400m was some way off last year's £1.7bn, largely as a result of the £1.35bn non-cash benefit arising from the Royal Mail Pension Plan amendment in 2014.

Royal Mail chief executive Moya Greene said: "We have delivered operating profits in line with our expectations. Our continuing focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue.

"Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs."

Royal Mail said that addressed letter volumes had decreased by 4% (excluding the impact of election mailings) in the year, which was at the better end of its medium-term 4%-6% decline per annum forecast.

UK parcel volumes increased 3%, although parcel revenue only grew by 1%, reflecting the change in mix with more low average unit value import parcels and the impact of the competitive environment on pricing.

Royal Mail said that it estimated the total volume of parcel deliveries in the UK would grow at approximately 4% per annum in the medium term, but that the impact of Amazon's delivery network would reduce the annual growth rate in its addressable market to 1%-2% in the short term.

Elsewhere in the accounts, Royal Mail revealed that it had made a £106m profit on the £111m sale of its former Paddington Mail Centre site to Great Western Developments in December 2014. The group is still marketing its Nine Elms site and evaluating options for its Mount Pleasant site.

Royal Mail's share price was down 0.3% at 498.4p at the time of writing.

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