UK’s Royal Mail focuses on costs in tough market

Intense competition in the parcels market from rivals including Amazon will leave Britain’s Royal Mail reliant on cost controls and efficiency improvements to underpin profits this year.

Parcels, which generate half of Royal Mail’s £9.4bn (€13.2bn) revenues, are the firm’s focus in light of declining letter volumes. However, growth forecasts have had to be cut because of overcapacity in the market that led to the demise of rival City Link last December.

Royal Mail forecast, last November, growth in the British parcels market would fall from 4%-5% to 1%-2% for at least two years as Amazon delivers more of its own packages and others seek to muscle in on rising online retail demand.

“We’ve got a number of competitors adding new capacity in 2015, which is going to keep putting downward pressure on pricing,” Royal Mail boss Moya Greene said yesterday, as the company announced annual financial results.

Ms Greene declined to say if parcel revenues would grow in 2015 but said Royal Mail was focused on keeping costs flat or reducing them. The company has 130,000 staff, down almost 30,000 since 2007.

Shares in the firm, which was privatised in October 2013, ended the day fractionally higher at 500p, up 0.2%. The UK government still owns 30% of the company.

Royal Mail said adjusted operating profit before transformation costs for the year to the end of March was £740m, up 6% on a year ago and ahead of forecasts of £712m. Including pensions accounting and other one-off items, however, profit was down 9% on a reported basis. The performance was helped by a better-than-expected 1% fall in operating costs. The company increased its dividend 5% to 21p.

Chairman Donald Brydon announced in January he would step down this year, prompting some analysts to speculate Ms Greene could follow. However, the Canadian said she wasn’t going anywhere. “I love Royal Mail. I’m in here every morning with bells on.”

Reuters