Royal Mail today reported a £39 million full-year operating profit, after modernisation costs,down from £180 million in the 2009-10 fiscal year. The UK state-owned postal group said the decline
was primarily due to a drop in its traditional mail and Post Office revenues, although it alsoreflected “a change to the focus of Royal Mail Group profit reporting”.The organisation said the key profit metric was now “profit after costs associated withmodernising the business”, providing “a better understanding of the returns being generated inpursuit of our strategic aims”.
Total revenues declined to £9.2 billion from £9.3 billion, mainly because of a 4% fall in coremail volumes. The UK Letters & Parcels and International business lost £120 million in 2010-11,compared with a £20 million profit in 2009-10. Revenue decline was mainly driven by a fall involumes, the company said.
However, Royal Mail saw continued strong growth for tracked services, which achieved more than100% growth in volume and revenue for the third year running. And the group’s General LogisticSystems (GLS) business remains highly profitable and grew its operating profits by 5.3%.
Profits at the group’s Post Office declined from £33 million to £21 million as a result of lowerrevenues from traditional business. Total group operating costs have decreased from £9 billion to£8.9 billion in 2010-11. Tight cost control, including a reduction in head office personnel and aprocurement initiative contributed to this performance.
Chief Executive Moya Greene said: “We need to put Royal Mail and our ability to deliver theuniversal service offering (USO) on a sound, stable and sustainable footing. We have a clear planin place to deal with our difficult business environment. The plan is very challenging, but we aredetermined to achieve it.”
She said modernisation was delivering cost savings and efficiency gains, but much remained to bedone. Around £400 million had been invested in modernisation during the year. Initiatives includedthe closure of 12 mail centres and, after extensive consultations, the prospective closure of afurther 16. Around 5,500 UK-based people left the group during the year, bringing to 45,000the total number of people to have left since 2002 as part of the company’s ongoing changeprogramme. Other initiatives include a 2.4% reduction in hours worked, to help offset mail volumedecline.
Greene added: “Royal Mail has been in significant financial difficulty for a number of years,reporting negative cash flow four years in a row. Our challenge is to put the Group and theUniversal Service on a sound, secure and sustainable footing.
“We are honoured to collect and deliver the mail on behalf of households and businesses acrossthe UK. But, our industry, along with our European peers, is in decline. At the same time thenumber of addresses that we must deliver to everyday increased by 300,000. Letters now account fora very modest share of daily social messaging. Inland addressed volumes peaked in 2005-6 at about80 million items of mail a day. This year, we delivered 62 million items of mail a day, a declineof over 20%. We expect further declines of around 5% a year.
“We are losing money in our UK Letters & Parcels and International business – £120 millionlast year or over £2 million a week. Our margin, fell from 1.9% in this current year to 0.4%. It isslim compared to other postal operators and not enough to re-invest in our business.”
She said Royal Mail’s modernisation is one of the largest change management programmes everundertaken in the UK. “Our peak period of change is underway – now,” she said. “The jobs of over100,000 people are changing. We are working closely with the Communication Workers Union (CWU)under the Business Transformation agreement reached in early 2010.
“We have to develop new products and services to meet the needs of our customers and generateadditional revenues to offset the decline in earnings from our letters business. We will alsoinnovate and build new partnerships with respected third parties.
“The next two years will be challenging. We need to reduce our costs faster than the decline inrevenues from our core letters business. The pace of change in our mail centres will continue. Weexpect that around half of the mail centres could close by 2016/17. We are introducing new deliverymethods throughout our 1,371 delivery offices and we have completed 117 delivery office changesalready. In the next year, we will complete the delivery transformation in more than 700 offices or50% of them.
Greene welcomed the Government’s investment in the Post Office of £1.34 billion over the nextfour years. “This commitment reinforces the Post Office’s place in local communities and its vitalrole as part of the UK’s economic and social infrastructure,” she added.
“We also warmly welcome the passing of the Postal Services Act. The Act provides an enablingframework within which key issues for Royal Mail can be addressed, particularly pensions, access tonew external capital and the regulatory framework.
“This is a very significant change agenda. We are grateful for the considerable support of ourshareholder, the government. I would also like to thank all my colleagues for their commitment andpride in Royal Mail Group this year. I know I can count on them as we reshape and rebuild theGroup. We have a clear plan in place to deal with our difficult business environment. The plan isvery challenging but we are determined to achieve it.”
