Royal Mail's share price fell nearly five per cent as letter volumes floundered, but it managed to maintain its forecasts for the year ahead due to a strong Christmas period and solid parcel revenue growth.
In a trading statement today, Royal Mail said group revenue was flat for the first nine months of the year, but it remained in line with expectations.
Revenue for UKPIL, the group's UK parcels and letters delivery business, fell two per cent, while its Parcelforce brand's worldwide volume declined one per cent.
Parcel revenue in the UK was up three per cent with volumes up two per cent. Total letter revenue slipped five per cent, while addressed letter revenue, which exclude election mailings, dropped by six per cent.
However, UKPIL's loss was offset by revenue growth in General Logistics Systems (GLS), which operates a parcel delivery network in Europe. GLS revenue was up nine per cent in the nine months, but the rate of international parcel growth slowed over the period.
Christmas gave the postal firm a much-needed boost with 138m parcels handled in December alone – better than last year.
The company's share price was down 4.49 per cent to 429.2p when the markets opened.
Why it's interesting
Although results were in line with expectations, the postal service said it is seeing the impact of post-Brexit business uncertainty hit UK letter volumes. However, its outlook and guidance for the year remained unchanged.
GLS performed particularly well in the period due to the timing of Easter and other public holidays across Europe, which accounted for around one percentage point of the volume and revenue movements.
Royal Mail is in the midst of a cost-cutting programme, during which time the company is targeting a reduction of up to one per cent, or around £225m, in underlying UKPIL operating costs in 2016-17. Its total cost avoidance target is £600m of annualised costs cumulative over the three financial years ending 2017-18.
The group is also consulting with union workers over a scrapped pension scheme that Royal Mail said would be "unaffordable" in two years. In the trading update, the company said: "No decisions will be made until the consultation process is completed, Royal Mail has considered members' views, and discussed responses with its unions as part of the pension review process."
What Royal Mail said
Moya Greene, chief executive of Royal Mail, said:
Our postmen and women delivered a great service at Christmas, even better than last year, with 138m parcels handled in December alone. Our comprehensive planning, which started much earlier this year, enabled us to deliver this service for our customers right across the UK.
Our cost avoidance programme is on track. We continue to target a reduction of up to one per cent in underlying UKPIL operating costs before transformation costs in 2016-17.
A strong boost from parcels and Christmas letters was enough to keep Royal Mail hitting its own targets but failed to assuage market concerns over a declining letter market and pension headaches.