Letters slide as parcels take up slack at Royal Mail

Picture: PA
Picture: PA
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LETTER deliveries slid again at Royal Mail in its first trading quarter as the former state-owned organisation revealed yesterday that the tough trading environment of the previous 12 months had persisted.

Moya Greene, Royal Mail’s Canadian-born chief executive, said the number of letters delivered fell 5 per cent and letter revenues dropped 4 per cent in the period to 28 June as people’s preference for e-mail communication continues to eat into the traditional letter market. The figures exclude the impact of election mailings.

The parcels business did better, with volumes and revenues up 3 per cent and 2 per cent respectively, helped by Greene’s continued cost-cutting drive.

“In the first three months of our financial year we have seen a continuation of the market trends we saw last year,” Greene said. “Our trading environment remains challenging and we are stepping up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.”

The latest trading update comes after shares in Royal Mail fell sharply on Friday when Ofcom confirmed the scope of a “fundamental review” into the firm’s operations that could see the regulator impose a cap on prices.

Royal Mail said yesterday that the outlook for its letters and parcels businesses for the full year remained unchanged.

It said the annual result will be heavily dependent on the Christmas season, as usual. Royal Mail’s international parcels business GLS did better than City expectations in Q1, with volumes up 9 per cent and sales lifting 8 per cent, powered by a good performance in Italy and Germany.

Brokers at Bank of America Merrill Lynch said trading was in line with expectations with “mail performing slightly below and the GLS and parcels’ divisions performing slightly ahead”.

Ofcom said last Friday 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, which first said it would look at this area last month, has become concerned at the weakening of competition in parts of the letters and parcels markets.

The letter delivery arm of Whistl and parcel firm City Link have both folded within the last seven months. The collapse of the letter service run by Whistl – formerly known as TNT – left the Royal Mail with no national market competitor.

Ofcom will also look at the firm’s dominance in parcels and assess its ability to set wholesale prices “in a way that might harm competition”.