Royal Mail reports flat revenues – parcels up, letters down

Royal Mail has today (21 July) reported that group revenues were flat for the three months ended 28 June. While the UK parcels were up 3% by volume and 2% by revenue, the UK addressed letter business was down 5% by volume and 4% by revenue. Royal Mail said that the UK parcels business had benefited from  a 20% increase in volumes for Parcelforce Worldwide and parcel initiatives that took effect in the second half of 2014-2015.

“We successfully targeted new sectors of the market and benefitted from opening our network later and at the weekend,” said Royal Mail.

The results for UK Letters were in line with Royal Mail’s forecast of a 4-6% per annum volume decline. General Logistics Systems (GLS) – Royal Mail’s ground-based European parcel delivery network – saw its volumes increase by 9% and revenues rise by 8%.

This better-than-expected result was driven by “a continued good performance in Italy and a better performance in Germany”.

Commenting on the results, Moya Greene, Chief Executive Officer, Royal Mail, said: “In the first three months of our financial year we have seen a continuation of the overall market trends we saw last year. We have benefitted from the parcel initiatives that took effect in the second half of last year and a good performance from GLS. Our trading environment remains challenging and we are stepping up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.”

Royal Mail said that its outlook for letter and parcel trends and other guidance remain unchanged from that set out in its latest annual Financial Report. The results for the half year ending 27 September 2015 are expected to be announced on Thursday 19 November 2015.

In May, Royal Mail reported full year profits of £740m, which was a 6% increase on the previous year. At the start of June, the UK government announced that it would be selling off the state’s 30% stake in Royal Mail.

Royal Mail is currently awaiting the results of a “fundamental” which Ofcom is carrying out to “ensure regulation remains appropriate and sufficient to secure the universal postal service”. The situation has been complicated by Whistl’s decision to terminate its End to End (E2E) letter delivery service. Ofcom published its discussion document for the review on Friday (17 July) and has invited commented from industry stakeholders.

Today’s results drew a mixed response from market analysts. Barclays was generally positive and said that the performance was “within the band of expectations”. Berenberg was a bit more upbeat, saying that the first quarter results were “rather better than expectations”.

However, Fiona Cincotta, a senior market analyst at www.finspreads.com, was less convinced.

“Royal Mail released a fairly disappointing set of results for the first quarter,” Cincotta told Post&Parcel this morning. “They tried to put a positive spin on numbers that demonstrated what an extremely challenging market they are operating in. It would seem that Royal Mail are struggling to cut costs quickly enough to stay ahead in the game where changing consumer trends are taking hold and people are finding alternative means of communication.”

Although Cincotta conceded that Royal Mail was “benefitting from parcel initiatives”, she questioned whether the company was doing enough to keep pace with the key players in this sector.