Royal Mail cautious on trading, as competition hits parcels performance

Royal Mail issued a cautious outlook on this year’s trading as it said results for the past year have been in line with expectations. The company’s domestic parcels business achieved enough growth to counter the decline seen in letters revenue, but was held back by high levels of competition.

Much of the Group’s improvement came from its European parcels business GLS.

The privatised UK postal operator said it is now aiming to step up its efforts to improve efficiency, growth and innovation.

Results for the 12 months up to 29 March, 2015, not including currency impacts and one-off costs, showed underlying group revenue up 1% to £9.42bn, but pre-tax profits were down 35% compared to the same period a year ago, to £421m.

Nevertheless earnings per share were up 39% to 42.8p.

Moya Greene, the Royal Mail chief executive, said: “We have delivered operating profits in line with our expectations. Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue. At the same time we have delivered a large number of innovations at pace as we transform our business.

“Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.”

Divisions

The 12 months saw a very slight decline in revenues at Royal Mail’s domestic postal division, to £7.76bn, with operating profit not including transformation costs up 1% to £615m.

A 1% decline in letter revenue was offset by a 1% rise in parcels revenue as parcel volumes grew 3% year-on-year and addressed letter volumes fell by 4%.

Transformation costs in the division were better than expected, while productivity improved by 2.5%. The division saw a net reduction of more than 5,500 employees during the year.

European parcels business GLS saw its revenue rise 7% year-on-year, ahead of expectations to £1.65bn, while operating profit rose 6.4% to £115m. Volumes were up 8% year-on-year at GLS.

Looking ahead, Royal Mail said the parcels and letters markets in the UK remained “highly competitive”, despite the loss of some significant rivals over the past 12 months, including parcel carrier City Link and the end-to-end delivery business of PostNL-owned Whistl.

Greene was cautious in pinning too much on the performance of the business since the end of March, since she said the full year’s performance would be more dependent on the second half of the year and the peal season.

“At this early stage of the financial year trading is in line with our expectations, but as in previous years our performance will be weighted to the second half and will be dependent on our important Christmas period,” she said.

“We remain committed to delivering value for our shareholders and the Board is recommending an increase in the full year dividend of 5%.”