Royal Mail results hide new threats

Royal Mail has succeeded in putting a positive spin on its first set of results since privatisation, despite admitting that the threat of strike action and long-term decline in mail volumes could hit growth forecasts for the year.
With pre-tax profits for the group rising year on year to £233m from £94m for the six months ending September 29, the company claimed it had made a “good start” to the second half of its fiscal year.
However, first half costs benefitted from what Royal Mail called “certain one-off and other items” of £45m, which will not be repeated in the second half. The group results in March will also be heavily distorted by a £1bn windfall from a change in accountancy treatments.
Meanwhile, the direct mail business recorded a 3% drop in revenue year on year to £545m for the six months, and the company conceded that it was continuing to see declines in business mail volumes as firms, particularly in the financial services industry, move to online communications.
Despite claims that mailings from energy companies had “benefitted the business”, the millions of letters informing customers of controversial price rises have actually only made the picture less gloomy. Also, many of these mailshots do not count as direct mail.
Royal Mail’s parcel division has also been hit by the prospect of industrial action, with companies switching their Christmas business to rivals in anticipation of a national strike.
In a statement, Royal Mail said: “We are about to enter our busiest period of the year. Since September, as expected, there has been some customer reaction to the industrial relations situation. To date this has been limited to a slowdown in the rate of business customer acquisition in parcels and switching of some volume to competitors in anticipation of strike action.
“Depending on the strength of the seasonal parcels volume growth in late November and December, this may result in Royal Mail reporting broadly unchanged parcel volumes but significant revenue growth for the nine months to December 2013. Our letters business had a good start to the second half and has particularly benefitted from energy company mailings.”
The results announcement coincides with Royal Mail being forced to extend talks with the unions for the third time, saying that negotiations with the Communication Workers Union (CWU) on industrial stability, pay and protections would carry on for at least another seven days. It is estimated that the potential strike would could Royal Mail £30m a day, wiping out the latest £233m profits in just over a week of action.
Commenting on the results Chris Combemale, the executive director of the DMA, said: “The small drop in Royal Mail’s marketing mail revenue this year is undoubtedly the result of the ‘Olympic effect’ and Diamond Jubilee boosting last year’s figures. Confidence in the medium is still riding high among marketers, with expenditure on marketing mail continuing to make a huge contribution to Royal Mail’s bottom line.
“To maintain its bulk mail custom and to win new customers, Royal Mail must continue develop the channel by investing in its services to ensure it remains competitive in a burgeoning market. As the results show, it has lost some custom due to uncertainty hanging over its industrial action negotiations with the CWU. We hope both reach an equitable agreement soon. Any disruption to service would quickly lead to further businesses taking their custom elsewhere, which is an outcome that would not benefit the postal workers that CWU represents.”