Management at Royal Mail (RMG) may have thought the company’s performance in the nine months to December was something to shout about, but the market seemed to think otherwise. The shares fell on the day of the update, despite the company announcing a 2 per cent increase in group revenue during the first three quarters of its financial year. While this beat analysts' expectations, the number of letters sent continues to decline, while tensions with the union persist.
Parcel and international general logistics systems (GLS) segments continued to compensate for the lacklustre performance in letters during the third quarter. Parcel revenue was up 4 per cent, largely thanks to customers paying to have their parcels tracked, while volumes were up 6 per cent to 149m. However, Dutch-based GLS suffered a 3 per cent decline in underlying volumes and revenue.
Encouraging customers to use snail mail continues to be a challenge for Royal Mail. Volumes of addressed letters, which excludes political parties’ election mailings, fell 5 per cent and revenue by 3 per cent. This was even against what management admitted was a “relatively weak period the prior year”. Analysts at Investec expect underlying parcel volumes to grow by 5.2 per cent but revenue to decline by 3.3 per cent, while revenue from letters should fall by 4.8 per cent and volumes by 3.3 per cent.
Another sore spot for Royal Mail is the ongoing dispute with the union over pensions and pay. Workers had threatened to strike over the holidays, which would have been disastrous for the all-important Christmas trading season. The planned industrial action was called off and management said it has “continued to make progress” in the talks, but details are yet to be finalised. Although there is a pension surplus now, Royal Mail has estimated that its £400m annual contribution would surge to around £1bn if changes are not made to the pension scheme.
