Tag: Royal Mail

An interim report from the Government-commissioned review of the deregulation of mail services in 2006 warned this week that only large businesses were benefiting from competition and that the statutory requirement on Royal Mail to offer daily deliveries to every address in the UK would cause it substantial financial problems.

Despite Mr Crozier’s warning, Postcomm, the industry regulator, pointed out that Royal Mail had already been allowed to raise the cost of stamps ahead of inflation and said it believed the current level of price controls governing the company was appropriate.

However, Royal Mail is currently most taxed about the regulation of its services to larger businesses, where it now faces significant competition from around 20 rival suppliers. While the company is free to set prices for services in this area as it sees fit, it has to offer the same price to all businesses on each of its tariffs. It is also required to offer rival services access to its delivery network, at a cost fixed in relation to the charges it makes its own customers.

Mr Crozier believes these restrictions reduce the competitiveness of the business services offered through Royal Mail Letters, undermining the company’s ability to subsidise the universal service.

The Government’s review of deregulation is due to conclude later this year but has already said the status quo should not be allowed to continue.

Nevertheless, relaxation of regulation of Royal Mail is likely to be stiffly contested by both Postcomm and the company’s commercial rivals, such as UK Post and TNT, which are facing similar market pressures. The overall size of the mail market in the UK is declining as the internet replaces both personal and business mail. More people pay bills online or by direct debit, and businesses have moved away from direct mailshot activities towards online marketing.

While Royal Mail’s rivals now collect and sort a fifth of all mail in the UK – before paying Royal Mail to deliver much of it – they insist they still need protection from the former monopoly.

• Group external revenue of GBP 9,388million, up 2.3pct

• Group operating profit before exceptionals of GBP 162million, down 30.4pct

• Royal Mail Letters recorded a loss of GBP 3million due to a sharp decline in mail volumes, the continuing impact of full competition and increased levels of investment

• The Universal Service made an estimated loss – for the first time – of around GBP 100million with the overall price controlled area of Royal Mail’s business making a loss of around GBP 200million

• GLS and Parcelforce Worldwide saw a significant rise in revenues, with profits remaining constant due to increased, volume-driven costs and competitive pressures

• Post Office Limited recorded an overall loss of GBP 34million, this was an improvement due to the full year impact of the Social Network Payment

• Landmark agreements on pay, pensions and modernisation

• Cash contribution by the Company to Pension Plan of more than GBP 800million

Commenting on these results Adam Crozier, Royal Mail Group’s Chief Executive, said:

The results are dominated by the profit fall in the Letters business where overall market volumes have declined by 3.2pct year on year in line with other major European postal markets. Royal Mail Letters is handling three million fewer letters a day than a year ago, and revenues have fallen further as customers down-trade to lower priced products and rivals handle increasing volumes. The company is also continuing to pay huge sums into the Royal Mail Pension Plan – more than GBP 800million in cash last year. A key achievement of last year, however, was to put in place and agree with a strategy to modernise and transform the Letters business with heavy investment in our people and technology that will deliver efficiencies and provide the platform for new and more flexible products for customers – alongside the agreement on major pension reform which took effect on 1 April 2008.