Parcel boost delivers great Christmas for Royal Mail
21 January 2016
Royal Mail has cheered a good Christmas, saying it delivered 130 million parcels in its crucial festive season.
The group said parcel deliveries rose 6% year on year in December and by 4% overall in the first nine months of its financial year.
But tough competition put pressure on pricing, leaving parcel revenues up by a more muted 1%.
Letter volumes continued to fall – down 3% in the nine months to December 27 – although Royal Mail said this was an improvement on the first half, when it saw a 4% drop. Letter revenues fell 2% in the past nine months.
Royal Mail – which is now fully privatised after the Government sold its final stake in October for just over £591 million – added that it remained on track to cut costs by at least 1% over the full year.
Royal Mail chief executive Moya Greene said: “Once again, our postmen and women delivered a great Christmas – even better than last year’s strong performance.”
She said planning for the peak Christmas season began in the spring to ensure the company was able to handle the surge in deliveries of parcels and letters.
Shares in Royal Mail lifted 3% as analysts praised a solid performance.
Charles Huggins, investment analyst at Hargreaves Lansdown, said: “Royal Mail is performing well in a tough environment and has delivered solid performance over the key Christmas period.”
He added: “The group coped well with higher UK parcel volumes in December, but competitive pressures here show no sign of easing.”
The parcels business is being seen as Royal Mail’s engine for growth, given the ongoing decline in letters.
Rival City Link was forced out of business in December 2014 amid the fallout from Amazon’s increased use of its own network for deliveries, with a raft of other firms in the sector also since warning of pricing pressures.
Royal Mail is fighting back with investment in technology to improve its service, while it also bought same-day delivery firm eCourier in November.
Mr Huggins said: “Royal Mail is in a much better position than other postal operators to weather the storm.
“It is by far the largest player, with around 50% of the UK parcel market, so can invest more in technology and service.”
Royal Mail’s European parcels business, GLS, which accounts for almost a sixth of group revenues, is also performing better than expected, according to Royal Mail.
It saw deliveries rise 11% and revenues jump by 10% in the first nine months of its year.
As part of efforts to cut costs, Royal Mail shed around 5,500 staff last year and secured around £40 million of savings from a head office reorganisation.
It was a tough year for the group, framed by the threat posed by the roll-out of Amazon’s delivery network, while in July the firm’s regulator Ofcom said it would launch a ”fundamental review” that could see it impose a cap on prices.
Ofcom said its inquiry will look at whether current regulation secures ”the efficient and financially sustainable provision” of the country’s universal postal service.
The universal service is the Royal Mail’s commitment to make deliveries to all parts of the UK at a flat rate, six days a week.
The watchdog has become concerned at the weakening of competition in parts of the letters market.
The letter delivery arms of Whistl and City Link have both folded in the last 18 months. The collapse of the letter service run by Whistl – formerly known as TNT – left the Royal Mail with no national competitor in this market.
The watchdog is not expected to report back until the middle of this year.
Photo from Danny Lawson / PA Wire