Royal Mail share price falls despite shrinking costs

Jessica Morris
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Royal Mail's revenue fell by nine per cent (Source: Getty)

The figures

The 500-year old postal service's revenues rose by one per cent to £9.4bn in the year to March 2015. Meanwhile, pre-tax profit fell from £1.6bn to £400m, although on an adjusted basis it rose to £569m, up from £421m in 2014.

Operating profit after transformation costs rose to £466m, up from £428m a year earlier, with analysts saying this could signal a reversal of fortunes for the troubled company.

Shares in the service fell 0.4 per cent in early morning trade to 497p.

Why it's interesting

Royal Mail operates within the parcel and letters market, with the latter being highly competitive due to new competitors such as DPD Hermes, UK Mail and Amazon Logistics Service as well as rapid innovation.

This was demonstrated by the collapse of delivery firm City Link, which announced it was folding on Christmas Day, with 2,700 workers being made redundant on by New Year's day.

Royal Mail is trying to counter this by investing in new technology such as Local Collect - the largest single click-and-collect network as well as Sunday opening at its busiest delivery offices. It's also undertaken about 30 new projects, including services, products and promotions, to improve its customer offering.

The below table sets out some of the key metrics by which it measures the progress of its transformation programme which began in 2007-8.

Mail Centres6939
Delivery Offices that have undergone modernisation-1,333
Letters sequenced to delivery point1%82%
Headcount in Operations158,900130,100
Lost Time Accidents per 100,000 hours in Operations(1.1)2.5
Lost Time Accidents per 100,000 hours in Operations2.360.67

Nevertheless, the service remained cautious, saying it expects volume growth in the addressed parcel market to stick at one to two per cent annually in the short-term - however, "this will be dependent on the speed and extent of rollout of Amazon's own delivery network".

Additionally, the company expects UK addressed letter market volumes, excluding from elections, to decline by four to six per cent per annum in the medium term.

What Royal Mail said

Moya Greene, chief executive, said:

We have delivered operating profits in line with our expectations. Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue. At the same time we have delivered a large number of innovations at pace as we transform our business. Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.

In short

Time will tell whether investments in its service offering are enough amid an extremely competitive market.

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