Royal Mail Group today announced a 4% rise in operating profits for the first half of its 2009-10business year thanks to cost savings and despite lower volumes and revenues, as well as lower GLS
profits.Group operating profits (before exceptional items) improved to £184 million in the six monthsending September 2009, from £177 million in the same period last year, the British postal operatorsaid in a trading statement. Cost reductions and mail modernisation were the main contributors tothe higher profits. Group revenues dropped 1.6% to £4,575 million, mostly due to lower mail volumesand revenues and despite strong parcel revenues driven by online shopping and fulfilment.
The dominant mail division, Royal Mail Letters, had a 1.7% revenue fall to £3,210 million butimproved its operating profits by 4% to £48 million. Letter volumes fell about 8% over the sixmonths but price and product mix changes restricted the revenue decline, while cost reductionsenabled higher operating profits. About three billion of its 8.2 billion letters were fromcompetitors using Royal Mail for final-mile delivery, which it describes as a loss-making business.Staff numbers declined by 5,000 during the half-year.
The transformation of Royal Mail remains on track with an investment of more than £1.3billion to date out of the overall £2 billion investment up to 2011, the company said. Since spring2009, 55 ‘walk sequencing’ machines, which sort mail down to the exact delivery route, have beeninstalled. By 2011, Royal Mail aims to have 500 such machines in operation, enabling 75% of lettersto be ‘walk sequenced’.
“A combination of new and upgraded sorting machines in mail centres means more than 80% ofthe mail is now automatically sorted down to the level of the postman or woman’s walk and isdelivering cost benefits while changes in working practices – including everyone working all thehours for which they are paid, working flexibly and using the new equipment we’re investing in –have also helped drive efficiency and offset the effects of volume decline,” commented CEO AdamCrozier.
In the parcels sector, GLS had flat revenues of £718 million but excluding currency effectsfrom the strong euro its underlying revenues dropped 8%. The operating profit declined by 24% from£59 million to £45 million. This was a 6.3% profit margin compared to the previous year’s 8.25%. “Both prices and volumes are lower year on year as a result of the recessionary conditions and thechallenging trading environment. Cost reduction measures have been implemented but these have notbeen sufficient to fully mitigate the impact of revenue decline on operating profit,” Royal Mailsaid in its half-year trading statement.
Parcelforce Worldwide increased revenues by 3.8% to £191 million and almost doubled profitsfrom £4 million to £7 million, representing a 3.7% profit margin. The British parcels operatorincreased volumes and performed strongly by focusing on first-time deliveries and service quality.In addition, Parcelforce saw strong export growth as UK companies took advantage of the weak poundto seek out international opportunities. It launched a new suite of international products in thesummer to give customers an even greater range of services to meet their global delivery needs.
The retail network, Post Office Ltd, had an 8% drop in revenues to £426 million but improvedprofits by almost 50% to £41 million, mostly due to cost savings. The Post Office has continued toexpand its Financial Services portfolio with a wider range of mortgages on offer and also thelaunch of a business insurance policy open to 95% of the UK’s small firms.
However, Royal Mail’s pension plan “remains a daunting challenge to fund”, the company said.Its deficit is widely expected to increase from its £3.4 billion deficit three years ago to atleast £10 billion.
Looking ahead, Crozier commented: “The future for Royal Mail holds major challenges and theoutlook remains uncertain as mail volumes continue to fall in the UK and around the world and aslow interest rates affect sales of financial services through the Post Office. But we also seegreat opportunities for the business, its people and its customers if we continue to modernise,become more efficient and develop a leadership position in the intensely competitive packets andparcels business – the real engine for future growth – both in the UK and overseas. We believe thatwithin five years parcels and packets will be providing a very significant proportion of ourrevenues and profits – and will underpin our ability to continue to provide the all-importantUniversal Service across the UK every working day.”
“Change is difficult for everyone but Royal Mail has no alternative but to change andmodernise if it is to compete in today’s highly competitive communications market and keep ondelivering the postal service on which so many depend,” he added.
