Royal Mail does not expect profit from letters this year

Royal Mail group has said its letters business will not make a profit in the current financial year, after revealing its 2006/7 profits fell 44pct to GBP 194m from the service.

Overall, the group’s operating profits, including its international parcel operations and the Post Office network, fell by 55pct to GBP 158m in the year ending March 25 2007.
Overall revenues rose 1.4pct to GBP 9.18bn, and letters revenues were unchanged at GBP 6.86bn, despite a 2.3pct fall in inland addressed mail volumes.

Chief executive Adam Crozier and chairman Allan Leighton claimed, in a statement issued with the financial results, that competition in the postal market had developed more quickly than the regulator Postcomm had thought when it fixed the price control for the company.

They claim competitors picked up one in eight letters posted in 2006/7 and will pick up one in five posted in Royal Mail’s current financial year. This is a level Postcomm forecast would not be reached until 2010.

Another point raised was that the average 13p access fee paid by competitors to use its delivery network does not cover its costs.

Looking at the first five months of the current financial year the statement said revenues are down GBP 78m over the same period last year.

It concluded: “The emerging picture is that the combination of pension costs, revenue decline through losses to competition and the overall fall in mail volumes means that Royal Mail’s letters business is heading towards breakeven in the current financial year.”
The financial results drew comment from the Communication Workers Union, which after a series of strikes has recently agreed a pay and conditions deal with management that has been recommended to CWU members.

The union said the “disappointing” results were a direct result of “mismanagement, Postcomm’s irresponsible decisions and unfair competition”.
Dave Ward, deputy general secretary of the CWU, also questioned the GBP 1m salary paid to Crozier.