Royal Mail in “significant financial difficulty” as profits slump

Royal Mail Group has reported a drastic £141m drop in operating profit, due to a decline in revenues. The operator – whose annual results were published earlier today (Tuesday) – recorded a figure of just £39m, compared to £180m for the previous year.

Revenues dropped to £9.2bn (2010: £9.3bn) as a result of a 4% drop in core mail volumes. The profit margin, after modernisation costs, fell from 1.9% (2009-10) to 0.4%.

It was revealed that Royal Mail’s ‘UK Letters & Parcels and International business’ lost £120m over the last 12 months, a figure of £2m a week. The unit made a profit of £20m last year.

Royal Mail Group CEO Moya Greene (pictured) said the company remains in “significant financial difficulty”, and that the business will be challenged to reduce costs even further over the coming years, with up to half of Royal Mail’s delivery centres destined for closure.

Greene said: “The next two years will be challenging. We need to reduce our costs faster than the decline in revenues from our core letters business.

“The pace of change in our mail centres will continue. We expect that around half of the mail centres could close by 2016/17. We are introducing new delivery methods throughout our 1,371 delivery offices and we have completed 117 delivery office changes already. In the next year, we will complete the delivery transformation in more than 700 offices or 50% of them.”

Royal Mail Group CEO Moya Greene
Royal Mail Group CEO Moya Greene said costs need to be cut quickly

Royal Mail confirmed that revenues from mail volumes will continue to fall. Volumes reached their peak in 2006 at around 80m items per day. This year, the operator delivered an average of 62m a day – a drop of more than 20% over the five year period. The company expects further declines of around 5% a year.

The operator invested £400m over the course of year into its modernisation programme. It has closed 12 mail centres, with 5,500 employees leaving the business.

Greene said: “Our modernisation is one of the largest change management programmes ever undertaken in the UK. Our peak period of change is underway – now. The jobs of over 100,000 people are changing.

“We need to put Royal Mail and our ability to deliver the USO on a sound, stable and sustainable footing.

“We have a clear plan in place to deal with our difficult business environment. The plan is very challenging but we are determined to achieve it.”

The Group reported profits at Post Office Ltd fell from £33m to £21m, blaming “lower revenues from traditional business”.

However, there was better news concerning its parcel business GLS, where operating profits jumped 5.3%.

The Communication Workers Union (CWU) said the results reflect the damage of introducing competition into the postal market.

Dave Ward, CWU deputy general secretary, said: “Nobody should be surprised at these results; we are paying the price for the previous Government decision to introduce competition in a way that has effectively set Royal Mail up to fail.

“The reality is we have a regulatory regime that allows private companies to access the profitable parts of Royal Mail’s network and then dump the fixed cost final mile delivery back to Royal Mail. No company in the world would be successful in this environment.”

MPs gave the go-ahead to the Postal Services Bill, which includes the privatisation of Royal Mail, last week, with Royal Assent expected shortly.

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