Royal Mail profit falls by almost a third as it invests for the future

Profit fell by almost a third at Royal Mail in the first half of the current financial year, as the business invested heavily as part of its ongoing modernisation.

A trading statement for the six months ending 27 September 2015 released today records a 30% decline in pre-tax profit, which fell from £167m to £116m. Revenue remained effectively flat in the period, decreasing 1% to £4.4bn (2014: £4.5bn).

The group’s transformation costs, including almost 3,000 voluntary redundancies in its UK businesses (which include Parcelforce), doubled in the same period.

Currently at £94m, the trading statement said Royal Mail expects to see its transformation costs hit £180m by the end of the financial year.

Parcel automation is listed as a significant upcoming transformation, after Royal Mail saw its parcel volumes increase 4% for the six month period. The first sortation machine is set to be installed in Swindon next month, with more to follow in subsequent months.

The group’s letters volume decreased by 4%, which Royal Mail said is at the lower end of its forecast 4-6% annual depletion rate for the sector.

The trading statement also alluded to Royal Mail’s ongoing conflict with competitor Whistl, after it received a Statement of Objections from regulator Ofcom setting out the preliminary findings into the group’s alleged breach of competition law.

The results state that the group “will robustly defend Royal Mail against Ofcom's allegations,” adding: “We are not in a position to accurately predict when we will receive Ofcom's final decision nor have we received any detail as yet from Ofcom as to the quantum of any potential penalty (which we will only receive if Ofcom intends to make an infringement finding).

“We continue to maintain that we have not infringed competition law and our representations to Ofcom will be on that basis.”

Royal Mail chief executive Moya Greene said: “We have delivered a resilient performance in the first half, demonstrating our ability to respond to a competitive trading environment.

“We delivered parcel volume and revenue growth in the UK, which continues to be a challenging market. Addressed letter volume decline was at the better end of our forecast range. We are driving through a range of product innovations and service improvements at pace, as well as targeting new areas of growth and enhancing our offering.

"As in previous years, the full year outcome will be dependent on our important Christmas period, for which we have extensive preparations in place."