Royal Mail profit falls, expects letter volume decline

Gladys Abbott
May 19, 2017

In its British business, letter volumes were down 6 per cent, at the higher end of Royal Mail's expectations.

Pre-tax profits rose to £335m in the year to 26 March from £267m, while revenues grew 5.7% to £9.8bn.

Parcel deliveries in the United Kingdom, where competition from the likes of FedEx and UPS has eaten into Royal Mail's market share, rose 3% and helped mitigate falling letter sending activity.

But the business's most impressive performance came from its overseas division - General Logistics Systems (GLS) - where sales jumped 9% to £2.5bn. About 8.60M shares traded or 183.83% up from the average.

The decline in letters was the focal point for investors, however, and Royal Mail's shares were the biggest faller in the FTSE 100 yesterday, down six per cent to 425.3p. The company blames a sharp decline in marketing mail, which it links to a loss of business confidence, in large part for a five per cent drop in revenue in its letters business over the nine months to 25 December.

Parcel deliveries rose 9% thanks to shoppers' insatiable appetite for online shopping, although the number of letters posted fell by 6%.

Annual profits for the company, which can trace its history back to 1516, jumped 25pc in the past year thanks to overseas growth and an increase in parcel handling, offsetting weaker parts of the business.

"We have made good progress against all of our strategic priorities", said chief executive Moya Green.

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With logistics businesses facing a downturn in the UK, RMG's UK business, which accounts for almost 80% of group sales, saw a 2% contraction in the top-line.

Overall revenues were "flat", with the Parcelforce worldwide unit seeing a slight decline and the European arm, GLS, recording "strong growth".

"Its deep expertise and focus on B2B parcels in multiple geographies - now 41 European countries and seven states in the USA - positions it to be a greater force for growth for the company".

Costs of its transformation programme came to £137mln, at the lower end of its forecast range of £130mln to £160mln, compared to £191mln the previous year as it cut 730 jobs in UKPIL.

The company added that it is on track to avoid around 600 million pounds ($777 million) of annualized costs in UKPIL by fiscal 2018. We are past the peak of investment; we now expect net cash investment of around £450m in 2017-18.

Richard Hunter, head of research at Wilson King Investment, noted that Royal Mail had delivered a solid set of numbers, underpinned by a strong contribution from its overseas business.

The company, which was privatised in 2013, is also facing the prospect of strike action over plans to close its defined benefit pension scheme next year.

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