Royal Mail suffered a sharp drop in group profits in the year ending March 30, 2008, due to a slumpin profits from its dominant letters business. European parcels subsidiary GLS saw its operating
profits stagnate due to strong competition and higher costs.The British postal operator said that group operating profit before exceptional itemsincluding restructuring costs dropped by 30.4% to £162 million (€205.8 million) from £233 millionone year earlier. The overall operating loss rose to £279 million from £10 million one year earlierdue to large-scale restructuring costs.
Royal Mail made a pre-tax loss of £77 million versus a £313 million profit one year earlier,but the net result ended with a £135 million profit (versus £286 million profit in 2006/07) due toa major tax credit of £212 million largely based on a sizeable government grant. Group revenuesgrew by 2.3% to £9,388 million.
CEO Adam Crozier said: “The £162 million operating profit is a robust financial performance –ahead of expectations – in a year when we faced many difficult challenges. But we secured alandmark agreement on modernisation and pensions and are pressing ahead with the vital investmentin and modernisation of Royal Mail Letters to ensure it competes successfully in a market wherevolumes are falling and competitive pressures are increasing.”
Royal Mail Letters recorded a loss of £3 million compared to a profit of £136 million oneyear earlier due to a sharp decline in mail volumes, the continuing impact of full competition andincreased levels of investment. Including exceptional items, the mail business made a loss of £357million. The Universal Service made a loss of around £100 million, and the group’s overallprice-controlled mail activities made a loss of around £200 million. Mail revenues fell to £6,830million from £6,857 million one year earlier as customers down-traded to lower priced products andrivals increased their market shares.
On the future financing of the Universal Service in the UK, Crozier said: “Our vision is toachieve a high quality, efficient and profitable Universal Service, focused on our social customersand SMEs, and forming the backbone of an innovative fully competitive business mail market –provided by an efficient, transformed, integrated and lightly regulated Royal Mail competing with avariety of rivals, both wholesale and end-to-end.” The British government is currently reviewingthe future financing of the universal postal service.
The retail network, Post Office Ltd, reduced its loss to £34 million from £108 million whileits revenues increased to £911 million from £868 million. “In the Post Office, we are now more thanhalfway through implementing the Government’s decision to reduce the size of the network by up to2,500 branches in line with the funding provided. We continue to do all we can to implement theprogramme as sensitively as possible, and at the same time, we are launching new products andservices to earn as much revenue as possible for the Post Office and to keep branches open asincome from traditional business declines,” Crozier commented.
Both parcel businesses, GLS and the UK domestic operation Parcelforce Worldwide, saw asignificant rise in revenues, with profits remaining constant due to increased, volume-driven costsand competitive pressures, Royal Mail said. “During the last year we also saw strong revenue growthin both Parcelforce Worldwide and GLS, the Group’s UK and European parcels businesses, both ofwhich operate in tight, highly competitive markets. These businesses make an important contributionto Group profitability,” Crozier pointed out.
GLS made an operating profit of £114 million, which represented 70% of Royal Mail’s overallprofits, compared to £115 million one year earlier. Its revenues grew to £1,232 million from £1,082million. GLS increased revenues through higher parcel volumes, with particularly strong growth inEastern Europe as well as through the ABX Belgium acquisition, Royal Mail noted.
Parcelforce Worldwide, which returned to the black last year, increased its operating profitbefore exceptional items from £7 million to £8 million. Including exceptional items, it made anoperating loss of £9 million. Its revenues rose to £379 million from £337 million.
Commenting on the results, Allan Leighton, Royal Mail Group’s Chairman, said: “Overall, thishas been a year when we did not shirk difficult challenges and decisions and when we began takingthe crucial next steps to put the company in a stronger position to tackle the tough marketconditions we face. Our financial performance would not have been possible but for ourdetermination to drive greater efficiency across the business and to develop services that meet theneeds of our customers who today have real choices – both within the postal industry and the widercommunications market.”
