Strong GLS results offset declining letter volumes for Royal Mail once again in 2017-18

For the year ended March 25, 2018, Royal Mail has reported revenues of £10.2bn, up by 2% year-on-year. Group operating profit after transformation costs was £581m, up by 1%, with the company’s margin sitting at 5.7%.

The core division of UKPIL (UK Parcels, International & Letters) had revenues of £7.6bn, flat on an underlying basis. Parcel revenue growth of 4% was offset by a 4% decline in letters revenues. Volume performance was similar, with parcel volumes up by 5% while addressed letter volumes fell by 5%, in line with expectations. Operating profit fell by 5.1% to £390m.

Royal Mail noted that the International arm of UKPIL performed “well”, driven by growth in cross-border parcels, mainly from Asia into Europe.

It stated: “Our international parcels business benefitted from our new initiative to attract cross-border traffic mainly from Asia into Europe. This accounted for around two percentage points of the underlying parcel volume growth and around one percentage point of the parcel revenue growth in the year, contributing £48 million of revenue.”

International business now accounts for 20% of UKPIL parcel volumes and 18% of revenue. Having targeted Asia to Europe flows, Royal Mail plans to move its focus to the US in 2018-19.

The European and US parcels division GLS noted underlying growth of 10% to £2.6bn on the back of volume growth of 9%. Including the impact of acquisitions on a constant currency basis, revenue was up 15%.

Operating profit increased by 16.5% to £191m. GLS now accounts for one third of the Group’s adjusted operating profit after transformation costs, up from 29% the previous year.

Germany, the largest GLS market by revenue, recorded revenue growth of 6% driven by international volume, improved domestic pricing, winning new customers and growing premium B2C volumes. In Italy, GLS reported revenue growth of 19% thanks to strong B2C volume growth driven by Amazon and other customers. In France however, revenue growth was just 1%, down from 8% the previous year. Growth was weak due to customer losses, lower new customer acquisitions and fewer working days. In Spain, the fifth largest GLS market, revenues were up by 13% on an underlying basis. Revenue growth was also achieved in the majority of other developed Europe markets, while revenue growth was noted in all emerging European markets, with double-digit growth in several.

For the next financial year, Royal Mail expects UKPIL parcel volume and revenue growth to be at least as good as 2017-18. On GLS, Royal Mail only stated: “Expect continued good performance in GLS. Margins may be impacted by continuing labour market pressures.”

Moya Greene, Chief Executive Officer, said: “It has been another successful year, despite the challenging environment. Group revenue is now over £10 billion, a significant milestone, thanks to our geographical diversification and focus on growth.

“GLS had another strong year. Its revenue grew organically and through targeted acquisitions in higher growth markets. Parcel volume growth in UKPIL was our best for four years. We delivered a resilient letters performance.”

Source: Royal Mail