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Annual monitoring update on the postal market Financial year 2017-18

27 Nov 2018, 12:53 ... 017-18.pdf


UK letters market
1.7 Addressed letters volumes declined by 5% to 11.1 billion items in 2017-18. This was a
similar decrease to last year. Overall letters revenues fell by 6% in real terms to £4,047m
in 2017-18, which was one percentage point more than last year’s revenue decline.

1.8 Access mail (mail injected by other providers into Royal Mail’s network for delivery to end
customers) accounted for 63% of total addressed letters in 2017-18, up from 61% in

1.9 Royal Mail changed the prices of its retail and access mail products in 2018. For retail
products, real terms price increases in 2018 (0.1%) were the same on average (0.1%) than
the price increases for 2017 (0.1%). For access mail, real terms price increases in 2018
were 2.1%.

The parcels market
1.10 Growth in total measured parcel volumes and revenues accelerated in 2017-18. Volumes
increased by 11% compared to 2016-17, reaching a total of 2.4 billion items. Total
revenues increased by 5% in real terms, a lower rate than the increase in volumes,
reaching £9.4 billion, leading to a fall in average unit revenue. In the previous year, the
annual growth in parcel volumes and revenues was 7% and 3% respectively

Royal Mail’s efficiency
1.20 Royal Mail has strong incentives to improve its efficiency in future to remain financially
sustainable. Progress on efficiency is likely to improve the profitability of the Reported
Business and help ensure the financial sustainability of the universal service.

1.21 Total costs for the Reported Business reduced by 3% in real terms in 2017-18 (compared
with 0.4% in the prior year). However, this reduction in costs is due to several factors
including one-off costs, changes in volumes and efficiency savings. PVEO analysis provides
a useful measure of efficiency improvements by separately identifying Price, Volume,
Efficiency and “Other” (i.e. one-off costs) factors. It indicates an underlying efficiency
improvement (excluding transformation costs) of c.2.8% in 2017-18 (against c.2.2% in the
prior year). The majority of costs savings in 2017-18 were achieved in non-people costs.

1.22 Royal Mail reduced total gross hours spent by employees in delivery and processing by
0.9% in 2017-18, less than the 1.9% reduction in the prior year. However, average people
costs per full time equivalent employee (FTE) increased in the year, while the average
revenue per FTE decreased, meaning that people costs increased relative to revenue.

1.23 In the first half of 2018-19, Royal Mail’s performance on efficiency has not matched its
expectations. This is a concern for us as we believe that efficiency remains critical to the
sustainability of the universal service.

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