Royal Mail crosses £10bn turnover mark but sees 37% pre-tax profit drop

Royal Mail offset declining letter volume with its growing parcels operation in a year that saw it surpass the £10bn turnover mark for the first time, but saw pre-tax profit fall by more than a third (37%).

For the year ended 25 March the group saw its turnover rise 2% to £10.2bn (2017: £9.8bn) but pre-tax profit tumbled to £212m compared with £335m a year ago.

The share price of the country's biggest road freight operator fell 6% (35p) shortly after the results were released.

Outgoing Royal Mail chief executive Moya Greene, who will be replaced by GLS boss Rico Back in September, said that the group was focused on “cost avoidance”, and measures in the financial report include increased automation and consolidating more mail pick into delivery rounds.

Turnover within the UKPIL division of the business was flat at £7.6bn after parcel revenue grew 4% but letter revenue fell by the same amount.

The group described itself as “the backbone of the e-commerce market” in its accounts, claiming a 53% share of the e-commerce delivery market.

It added that its focus on clothing and footwear manufacturers was working for it, name checking new contracts with New Look and Inditex in particular.

On declining letter volumes, which have been par for the course for a number of years, Royal Mail predicted it would continue to see a 4-6% decline per anum but that “the UK continues to have a relatively high number of letters per capita compared to other major countries”.

The group also gave an update on its drive to improve the technology across its parcels operation, in which it said more than 70% of its parcels now carry a barcode, the majority of which delivery confirmation is available with.

Five of the group’s UK hubs sites have automated sortation installed, with preparations for a sixth to be fitted out in its Swindon Mail Centre.

Read more

• Royal Mail confirms Moya Green to retire, with GLS parcel boss Rico Back taking over
• Royal Mail shareholders told to sell despite pay deal, as analysts question cost
• Royal Mail board agrees to Communication Workers Union deal

As throughout 2017/18, GLS was a driver of growth for the group as it continued its fast-paced acquisition strategy in Europe and the US.

The results statement outlined growing business in Spain after the acquisition of express parcel delivery company Redyser Transporte, and stated that following the purchase of American Postal Express last April, the group now covers all of the US West Coast too.

Turnover in the GLS division grew 10% year-on-year to £2.5bn (2017: £2.1bn). The division’s operating profit also grew by 10% to £191m (2017: £164m), which Royal Mail said was better than expected.

Royal Mail said that in regards Brexit it was working closely with the UK government on alternative models for customs arrangements.

It added that the new pay and pensions deal secured with the CWU earlier this year, would lay the foundation and framework for the next phase of the group’s transformation.

During 2018/19 – the first full year of the deal’s implementation - the group said it would be “working with our unions and people to implement operational changes to help retain and grow parcel volumes and to lay the foundations for future growth and productivity opportunities through operational trials”.

Greene said that with group turnover passing the £10bn turnover landmark, it had been “a successful year”.

She attributed the growth to the its push to diversify across the globe and focus on group-wide growth.