Royal Mail adjusts costs savings plans

Due to declines in marketing mail hitting productivity, Royal Mail has announced it is cutting its cost savings target from £230 million to £100 million for then current financial year.

In the trading update the postal operator said it now expects its group adjusted operating profit before transformation costs now to be in the region of £500 million to £550 million.

Chief executive Rico Back said: “Trading conditions in the UK are challenging. Our letter volumes, especially marketing mail, are impacted by on-going structural decline, business uncertainty and GDPR. While we now expect addressed letter volume declines outside our forecast range this year, we are maintaining our medium-term guidance. Our UK productivity and cost performance has been disappointing. Against this backdrop, we are lowering our targets for cost avoidance and productivity improvements for 2018-19.

Royal Mail also said that its parcels business is performing well:

“Revenue and volume are up six per cent for H1 2018-19. Revenue and volume growth for 2018-19 is now expected to be better than 2017-18. Our continued focus on customer initiatives is paying off. GLS revenue is up an estimated nine per cent for H1 2018-19. However, labour market and other cost pressures are impacting GLS margins more than anticipated.”

However, it said: “In the UK, letter volumes are being impacted by ongoing structural declines, business uncertainty and GDPR, such that addressed letter volume is down seven per cent in H1 2018-19. We anticipate a similar decline for the full year. Our medium-term outlook for addressed letter volume declines of between four to six per cent per annum (excluding political parties’ election mailings) is unchanged.”