Royal Mail hit by sharp decline in letters business

Royal Mail’s international business GLS was the best forming business in Royal Mail Group in H1 of 2016 with adjusted operating profit up 40% to £73 million on sales that were up 9% to £924 million.

Royal Mail’s UKPIL which is the core UK business was in contrast down 15% to £247 million of which sales were down 1% to £3.64 billion. This is largely down to the decline in the addressed letters business.

Royal Mail Chief executive Moya Greene said: “Group revenue increased by one per cent on an underlying basis, driven by a good performance from GLS, our continental European parcels business. We delivered UK parcel volume and revenue growth including new contract wins. Addressed letter volume decline was within our forecast range. The recent acquisition of ASM in Spain and GSO in California supports GLS’ strategy of targeted and focused geographic expansion.”

The global postal operator has increased its cost avoidance target from £500 million to £600 million in annualised costs cumulative over the three financial years ending 2017-18.

Royal Mail is seeking to reduce underlying UKPIL operating costs before transformation by around 1% in 2016-17. Net cash investment is expected to be no more than £500 million per annum, compared with an average of £615 million over the past three years.

Greene said: “As always, our performance for the full year will be dependent on the important Christmas period. Extensive planning, which began in the spring, will help us to manage our busiest time. This includes the recruitment of over 19,000 temporary staff and opening nine temporary parcel sort centres.”

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