GDPR expected to hit letter volumes

By Hannah Jordan, Thursday 17 May 2018

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Announcing its full year results, Royal Mail Group has said it anticipates a drop-off in letter volume as the new data protection rules stoke business uncertainty.

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Royal Mail group predicts a 6% decrease in letter volumes.

In its financial results for the 12 months to 25 March, Royal Mail Group reported group revenues of £10.2bn, up 2% on last year, although the group’s reported operating profit including ‘transformation costs’ took a sharp tumble from £353m to £123m during the period, after being hit with a £458 pension charge.

The adjusted operating profit, which excludes the pension cost and other items, before transformation costs, fell 1% to £694m. Net debt, meanwhile was slashed from £338m to £14m.

In March this year the group closed its current pension scheme to future accrual to avoid an anticipated annual contribution increase to around £1bn, from 2018. A new defined benefit cash balance scheme was implemented on 1 April, with the annual cash costs expected to be around £400m .

Announcing the results this morning (17 May) outgoing chief executive Moya Greene, said that crossing the £10bn mark was a “significant milestone” for the group and that despite a challenging environment, it had been another successful year. She cited geographical diversification and focus on growth for the increase in revenues.

Greene, who is due to step down next month, will be succeeded by head of the group’s European subsidiary General Logistsics Systems (GLS), Rico Back.

She warned that letter volumes were expected to decline at a rate “towards the higher end” of 4-6% or potentially more, amid GDPR uncertainty.

Revenue in the group’s UK Parcels, International & Letters (UKPIL) division remained flat at £7.6bn. Total letter volumes were down 5%, as expected, and revenues fell by 4% to £4.1bn. Marketing mail, meanwhile, was up 1% at 1.1bn, a turnaround from last year when they dropped by 8%. Greene said the division had delivered a “resilient” letter performance.

She also revealed that since launching an initiative to tackle fraudulent mail in 2016, Royal Mail has stopped 3m items of scam mail.

Parcels volume growth in UKPIL was up 5% to 1.2bn, its best result in four years, while revenues grew 4% to £3.5bn. 

Greene said that GLS had had another strong year. “Its revenue grew organically and through targeted acquisitions in higher growth markets. We continue to focus on cost avoidance and parcel revenue growth in the UK and through GLS.”

Revenues in the continental parcels division continued a strong performance with a 10% underlying increase in revenue to €2.9bn (£2.6bn).

The group is targeting cost reductions in UKPIL of £230m in the coming year although transformation costs are expected to be “at the upper end” of a forecasted £130m-£150m.

Outlook for the 2018/19 financial year, Greene said, was for UKPIL parcel volume and growth rates to be at least the same as those reported in today’s results with productivity improvements of around 2-3%.

GLS is expected to continue to perform well although some impact is anticipated from labour market pressures.

Overall investment is targeted at £500m for the year.  

The full year dividend increased by 4% to 24p. Royal Mail’s share price dropped by 5.8% in early trading to 563p. (52 week high: 585p Low: 558.6p).

 

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