Royal Mail today presented moderate growth figures for the nine months to December 2019, a downbeat outlook for the coming financial year and a pledge to press ahead with transformation measures despite a strike threat from the CWU union.
Under a five-year plan entitled Journey 2024, the British postal group last year announced £1.8 billion worth of investments in its parcels business, customer service improvements, digital initiatives and productivity measures to transform its UK network into a ‘parcels-led’ operation.
But the CWU opposed some of these measures and secured an overwhelming vote for a peak season strike that was blocked by a court injunction. It is now planning a new ballot in the coming weeks.
Royal Mail Group CEO Rico Back said today: “We are disappointed that the CWU has issued a timeline for a ballot of its members for industrial action.”
The company underlined: “We want to reach agreement to secure a successful and sustainable future for our UK business. Industrial action, or the threat of it, is damaging for our business and undermines the trust of our customers. We continue to offer CWU the opportunity for ongoing talks.”
Back emphasised: “We stand ready to invest £1.8 billion to modernise and grow in the UK. We want to reach agreement with CWU; but we cannot afford to delay this essential transformation any longer.
“So we are proceeding with key national trials and local initiatives, to improve our customer offering and grow the business, whilst maintaining good quality jobs and delivering a sustainable Universal Service.”
Outlining some of the measures taken as part of the transformation plan, Royal Mail said it had chosen the supplier for automation of the new Warrington parcel hub, which will handle 40,000 items per hour when fully operational.
In addition, the group is finalising the lease for its second parcel hub in the Midlands, which will be able to handle 60,000 items per hour when first operational, and is exploring options for a third (and final) hub.
Royal Mail is continuing to roll out small Parcel Sorting Machines (PSMs), which helped to almost double the number of parcels sorted automatically over the Black Friday and Christmas period to 39 million from 22 million last year. In parallel, 24 letter sorting machines have been taken out of operation since last April as volumes decline.
In addition, the company said it is now deploying “a range of much needed local change initiatives and key trials, which have been held up for many months”.
Parcel customers switch business over strike threat
The operational modernisation measures come as Royal Mail continues to grow only moderately in the UK parcels market, although international subsidiary GLS is achieving faster profitable growth.
In the nine months ending December 2019, Royal Mail Group increased its overall revenue by 3.7%. Quarterly figures for October – December were not disclosed.
In the UK, nine-month revenues were up by 1%, although this was a 2% rise when adjusted for 2.5 fewer working days. Letter revenue declined 1.5% on a 9% volume drop (excluding election mailings).
“We had a busy Christmas season, which coincided with a General Election (in December) for the first time in almost a century,” Back commented. “We achieved a high quality service for customers across the UK due to additional investment and, more importantly, the commitment and dedication of our people.”
In terms of the peak season, around Black Friday and Cyber Monday parcel volumes were higher than expected but for the rest of the Christmas period they were, on average, lower than anticipated. Due to the risk of industrial action, some customers switched volumes to other carriers, which reduced parcel revenue growth by approximately 0.5 percentage points.
Over the nine months, parcel revenues were 3.7% higher (4.9% adjusted) on a 3% volume rise (4% adjusted). But the company noted: “Parcels performance in January was stronger than Q3, which underpins our confidence in a higher level of revenue and volume growth in Q4.”
At a product level, Royal Mail domestic account parcels volumes, excluding Amazon, were up 5% (6% working day adjusted) over the nine months. Royal Mail Tracked 24®/48® and Tracked Returns® volumes, the key e-commerce products, grew by 17% (18% working day adjusted). Meanwhile, Parcelforce Worldwide volumes increased by 1% (2% working day adjusted).
Internationally, GLS grew well with volumes up by 5% and revenues 11% higher (7.3% excluding acquisitions) over the nine months as average prices increased.
In Europe, revenue growth was driven by strong performances in Germany, Belgium and Eastern European markets. In North America, Dicom, the Canadian business, continued to perform in line with expectations while the turnaround of the US business remains in line with plans for this year, the company commented.
Back continued: “Overall, our recent trading performance has been broadly in line with our expectations. We confirm adjusted Group operating profit is expected to be £300-340 million (before IFRS 16) for 2019-20.”
UK business could turn red next year
Looking ahead to the new 2020-21 financial year starting in April, Royal Mail described the outlook as “challenging”, with the mail volume decline expected to accelerate to 7-9%.
“Further, the ongoing industrial relations environment and delays to the delivery of our transformation plan, when combined with continuing economic uncertainty, increases the likelihood that UKPIL will be loss making in 2020-21. Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised,” the listed company warned.
“We are taking additional mitigating actions, and will provide an update on progress with these and further guidance with our 2019-20 full year results, which are expected to be announced on 21 May 2020. We continue to execute on our Journey 2024 plan as the best way to deliver a successful and sustainable future for the UK business,” it underlined.
