Royal Mail shrinks costs amid intense competition

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The figures

The 500-year old postal service's revenue rose by one per cent to £9,424m in the year to March 2015. Meanwhile pretax profit fell to £400m due to transformation costs and was down from £1,664m however on an adjusted basis it rose to £569m, up from £421m in 2014.

And operating profit after transformation costs rose to £466m, up from £428m a year earlier, with analysts saying that this could signal a reversal of fortunes for the troubled company.

Why it's interesting

Royal Mail operates within the parcel and letters market with the latter being highly competitive due to new competitors such as DPD Hermes, UK Mail and Amazon Logistics Service as well as rapid innovation.

This was demonstrated by the collapse of delivery firm City Link which announced it was folding on Christmas Day, with 2,700 workers being made redundant on New Year's.

Royal Mail is trying to counter this by investing in new technology such as Local Collect - the largest single click-and-collect network as well as Sunday opening at its busiest delivery offices. It's also undertaken about 30 new projects, including services, products and promotions, to improve its customer offering.

The below table sets out some of the key metrics by which it measures the progress of its transformation programme which began in 2007-8.

2007-15.PNG

Nevertheless it remained cautious saying it expects volume growth in the addressed parcel market would be one to two per cent annually in the short-term however "this will be dependent on the speed and extent of rollout of Amazon's own delivery network".

Additionally the company expects UK addressed letter market volumes, excluding elections, to decline by four to six per cent per annum in the medium term.

What Royal Mail said

Moya Greene, chief executive, said:

We have delivered operating profits in line with our expectations. Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue. At the same time we have delivered a large number of innovations at pace as we transform our business. Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.

In short

Time will tell whether investments in its service offering are enough amid an extremely competitive market.