Royal Mail recorded modest growth in the first half of its financial year largely due once again to its buoyant European deferred parcels operation, GLS.
“We had a good start to the year. Group revenue was up 2% on an underlying basis. GLS delivered a strong performance with revenue up 9%. Outside the EU, GLS is also growing through selective acquisitions to capture higher growth markets,” said CEO Moya Greene in a statement reviewing the results.
“UKPIL (UK Parcels, International & Letters) revenue was broadly unchanged, having declined by 2% in 2016-17. Our investment in our business is paying off. We have won new parcels business; volumes were up 6%. There was a resilient letters performance. Our strategic focus on costs drove a 1% underlying reduction in adjusted UKPIL operating costs (before transformation costs).”
She added: “Our performance for the full year, as always, will be dependent on the important Christmas period. We are opening six temporary parcel sort centres and recruiting over 20,000 staff. We are also extending opening hours at many of our Enquiry Offices to help retailers and consumers.”
On the subject of a long-running dispute over pay and pensions with the CWU staff union which last month saw the High Court grant Royal Mail an injunction to stop a planned two-day strike by more than 110,000 postal workers, Greene commented: “As previously announced, we are now in external mediation with the CWU. Our priority is to reach agreement with the CWU to help underpin the sustainability of the business.”
The High Court in London ruled that the company and the CWU had to complete all dispute resolution steps, including external mediation, before a strike could take place.
Looking at the results in more detail, Royal Mail's global revenue in the six months to 24 September totalled £4,829 million, an increase of 2% on the same period last year.
Group adjusted operating profit before transformation costs was £323 million, up 7%, while adjusted operating profit margin after transformation costs increased by 30 basis points on an underlying basis.
Royal Mail said the strong performance at GLS was largely driven by a 9% increase in domestic and international volumes which yielded underlying revenue and operating profit growth of 9% and 8% respectively.
Revenue was flat at Royal Mail's UK Parcels, International & Letters (UKPIL) division, totalling £3,624 million. Adjusted operating profit (before transformation costs) was reduced to £233 million against £247 million a year earlier. The operating margin was 4.7% against 5.2% a year ago.
Parcel revenue was up 5% to £1,596 million while volumes increased by 6% to 563 million pieces, growth being largely driven by Royal Mail domestic account parcels where new customers were gained and more traffic was generated by existing customers. Subsidiary Parcelforce's volumes grew by 1% to 47 million pieces.
In the Business/Account segment, account volumes, excluding Amazon, were up 4% while Royal Mail's Tracked 24/48 product saw its volumes rise by 38% on the same period last year, outpacing the market, with approximately 90 million pieces shipped.
Royal Mail's 'international cross?border initiative' contributed around two percentage points to the volume growth and one percentage point to revenue growth. Import (excluding the cross?border initiative) and export volumes showed an improvement too.
Royal Mail described the UK parcels market as one of the most-developed in Europe and as highly-competitive. “There is significant spare capacity in the market at non-peak times of the year, putting downward pressure on prices. International markets are also intensely competitive.”
Turning to UKPIL's Letters unit, total revenue (including marketing mail) was down 3% to £2,028 million, with higher than expected revenue from mailings associated with the 2017 General Election limiting the decline. Addressed letter volumes (excluding political parties' election mailings) were down by 5%.
“We continue to monitor the impact of overall business uncertainty in the UK on letter volumes,” the company said. “Marketing mail revenue, which includes redirections and our Address Management Unit, decreased by only 2% as the rate of decline has moderated following last year's sharp slowdown driven by business uncertainty. Low AUR unaddressed letter volumes were up 8%,” it added.
Turning to the outlook, Royal Mail said: "As in previous years, the outcome for the full year will be dependent on our performance over the important Christmas period. In addition, the industrial relations environment could impact our performance in the second half."
* Detailed GLS results are covered in a separate article.
