Royal Mail letters arm feels impact of Brexit concerns

A drop in letter volumes offset a stronger performance from Royal Mail's parcels business. Picture: Julie Bull

The privatised former state-owned monopoly said the number of addressed letters, excluding political parties’ election mailings, tumbled 6 per cent, while total letter revenues slid 5 per cent.

Royal Mail said: “We are seeing the impact of overall business uncertainty in the UK on letter volumes, in particular advertising and business letters.”

The group first signalled an impact on its letters arm amid Brexit fears in its half-year results in November, when revenues from advertising mail slumped 8 per cent. It said yesterday the trend for marketing mail revenues had remained broadly similar in the third quarter.

On the fall in total letter revenue, Royal Mail said: “We have seen the impact of low inflation on pricing and we continue to be affected by ongoing trends in downtrading.”

The poor outturn for the letters business was offset by a better performance from its parcels business, where revenues rose 3 per cent and the number of parcels delivered was up 2 per cent. Combined parcels and letters revenues fell 2 per cent.

However, Royal Mail said its European parcels business, General Logistics Systems (GLS), saw a strong festive quarter and that the division’s revenues climbed 9 per cent over the nine-month period. It helped overall group-wide revenues to hold firm on a year earlier.

Moya Greene, chief executive of Royal Mail, said: “Our postmen and women delivered a great service at Christmas, even better than last year, with 138 million 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.”

While letter mailings have been in decline for some time, Royal Mail said the third quarter was hit particularly hard as it also came up against an “unusually strong” Christmas a year earlier.

Its Parcelforce Worldwide business saw parcel numbers dip 1 per cent. Royal Mail said there was no decision yet over controversial changes to its pension scheme announced earlier this month, which sparked union threats of potential strike action.

The group said it had launched a consultation with 90,000 staff over plans to switch workers in its final salary pension scheme to a less lucrative defined contribution plan.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Letters are in terminal decline and the parcels industry is looking increasingly crowded. Combined with uncertainty around the health of the wider UK economy, which has resulted in steadily falling business mailings, this makes for a pretty unpleasant background in which to be doing business.”

Royal Mail’s shares ended the day 26.9p lower at 422.5p.

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