Royal Mail profit sinks £132m

Royal Mail Group’s operating profit fell to £52m in the six months to the end of September – a year-on-year decline of £132m. For the six months ended September 2009, Royal Mail recorded an operating profit of £184m. Therefore, operating profit fell by 72% year-on-year.

The Group said this was a result of mail volumes continuing to decline and competition from rival operators and electronic media increasing.

The operating profit in the first half of the 2010-11 financial year represented a return of just over 1% on Group-wide revenues of £4.4bn.

Royal Mail Group chairman Donald Brydon admitted it had been “a tough six months” for the company, however he said he remains “confidence for the future”.

The Letters business of the Group moved from operating profit to loss during the first half of the year with letter volumes falling to an average daily postbag of 68m items – 16m fewer than the average daily volume just five years ago, when volumes peaked. The average postbag is now at levels last seen in the mid 1990s.

The fall in mail volumes was by far the single biggest factor behind the drop in Group revenues.

Revenues fell by significantly more than the operating profit fall – demonstrating that the modernisation of operations with new technology and more efficient working practices is having a positive impact but also underlining the crucial need to step up the pace of transformation, the company said.

First and Second Class mail, Standard parcels and key business mail services are beating their targets according to the latest preliminary figures.

Moya Greene, Royal Mail Group’s CEO, said: “Trading conditions over the last six months have been exceptionally tough.

“I pay tribute to our frontline employees for the way they are getting on with the essential modernisation changes we are introducing. But with widespread predictions in the postal world that mail volumes will continue falling, perhaps by up to 40% over the next five years in the UK, it’s absolutely vital we step up the pace of modernisation to become more efficient to ensure we preserve the all-important, one-price-goes-everywhere Universal Service for all our customers and keep providing the services our customers need and want.”

Revenues fell in the Post Office business with a further fall in traditional business, including benefit payments via the Post Office Card Account, while revenues from other services, including foreign currency and telephony dipped.

However, the recent government announcement of a £1.3bn funding package for the next four years to maintain and modernise the Post Office network is “warmly welcomed” by the business.

The Group’s other two businesses, Parcelforce Worldwide and GLS, the European parcels business, both increased their operating profits in the first half of the year, despite intensifying competition in their markets, and both are leaders in their markets for customer service.

Greene said: “Both these businesses are unregulated, showing what we can achieve when we are allowed to compete fairly – which is why we are saying that the heavy regulation suffocating Royal Mail in the competitive market in which it operates should be lifted as soon as possible.”

The results for the first six months of the financial year also showed a further increase – up 13% – in “access” mail which has been collected from business customers by Royal Mail rivals but delivered by Royal Mail’s postmen and women.

The accounts for last year, 2009-10, showed Royal Mail losing an average of 2.5p on access mail, which accounts for more than one in three of all letters delivered by Royal Mail.

Greene said: “We need to end what is, in effect, a very substantial built-in subsidy from Royal Mail to its rivals.”

She added that a huge effort was underway to tackle the Group’s heavy underlying negative cash flow, including a special request to the regulator, Postcomm, for fair bulk business mail prices.

	External revenue		Operating profit/(loss)*
Business Unit	2010 £m	2009 £m	2010 £m	2009 £m
Royal Mail Letters	3,074	3,210	(66)	48
General Logistics Systems	707	718	51	45
Parcelforce Worldwide	197	191	8	7
Post Office Limited	398	426	20	41
Other businesses	26	30	39	43