The cost of strike action and a faster than predicted fall in letter volumes could see Royal Mail make a loss next year, despite a "strong" half-year performance from its parcels business.
Presenting Royal Mail’s half-yearly results to 29 September 2019, group chief executive Rico Back revealed a 5.1% increase in the group's revenues to £5.1bn. Pre-tax profits climbed to £173m, compared with £33m in the same period last year.
The group's UK parcels, international and letters division (UKPIL) saw revenue rise 1.8% - its best performance in five years. Back attributed this to “strong growth” in the division's domestic account parcels business, which saw a 7% rise in revenues and a 20% rise in returns volumes.
GLS, Royal Mail’s international parcels business, also shone with revenue up almost 9%, excluding acquisitions. GLS acquisitions in the period contributed £69m of revenue growth.
In the same period the group’s cross-border parcels business saw revenue rise by 6.9%.
However UKPIL's overall performance continued to be dogged by falling letter volumes and troubled industrial relations, which recently saw the threat of a postal workers strike over Christmas narrowly averted following a legal challenge.
Royal Mail put the 8% fall in addressed letter volumes down to continued business uncertainty, a weaker GDP outlook and the impact of GDPR legislation on letter volumes.
Back said: "UK parcel revenue growth more than offset letter revenue declines. GLS revenue, up 14.1 per cent including acquisitions, underlines the strength of our international operations."
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But he warned that letter volumes will continue to fall faster than predicted - up to 9% in 2019-20 and up to 8% the following year.
Back also revealed that the group's transformation plans, which aim to shift the business' focus from letters to parcels, are "behind schedule" which he said was due to "investing more because of the industrial relations environment, the General Election and Christmas."
He added: "This is likely to impact our productivity for the remainder of the year. When combined, revenue and cost headwinds could possibly result in a break-even or loss-making position for the UK business in 2020-21.
He added: “People are posting fewer letters and receiving more parcels. We have to adapt to that change. The challenging financial outlook in the UK means now, more than ever before, we need to make the changes required – and accelerate them - to ensure a successful UK business.
"We remain committed to investing £1.8 billion in our transformation. We want to change, working with our unions, but we can only do so through an affordable resolution. We have changed many times before. We will do it again.”
