Annual monitoring update on the postal market Financial year 2018-19

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1. Overview
This report sets out key data and trends in the postal sector for the 2018-19 financial year.
The regulatory framework Ofcom put in place in March 2012, and reviewed in March 2017, is
designed to fulfil our statutory duty of securing a universal postal service, having regard to financial
sustainability and efficiency. An effective and ongoing monitoring regime remains one of the key
safeguards of the regulatory framework, alongside greater pricing freedom for Royal Mail.
This document, together with a broad range of interactive data, constitutes our eighth annual
monitoring update on the postal sector. This report covers six key areas: analysis of the letters
market; the parcels market; consumer and small business experience of postal services; the financial
performance of Royal Mail’s Reported Business; the efficiency of Royal Mail’s Reported Business;
and Royal Mail’s regulatory compliance. The Reported Business is the part of Royal Mail’s business
responsible for the universal service, which requires Royal Mail to collect and deliver letters six days
a week and parcels five days a week, at an affordable and uniform price to all UK addresses.

What we have found

Letter volumes and revenues continued to decline. Addressed letters volumes declined by 8% to
10.2 billion items in 2018-19. The decline was larger than in the previous year, which saw a 5%
decline.

Overall letters revenues fell by 7% in real terms to £3.8 billion.

Parcel volumes and revenues continued to grow. Total volumes increased by 10% year-on-year,
reaching a total of 2.6 billion items. This increase was slightly lower than last year’s increase of 11%
year-on-year. Total revenues increased by 4%, reaching £10 billion.

Consumers continued to be satisfied with postal services. Over eight in ten residential consumers
were satisfied with Royal Mail (84%) and postal services overall (86%). Similarly, over eight in ten
SMEs who use Royal Mail (86%) and other providers (84%) said they were satisfied.

We launched two investigations against Royal Mail for breach of regulatory obligations. One was
for compliance with certain quality of service performance targets and one for pricing above the
permitted level for Second Class Mail for the last week of the financial year. In relation to
compliance with the quality of service performance targets, in 2018-19, Royal Mail only delivered
91.5% of its First Class mail next day against a target of 93%.

There was a downward trend across efficiency metrics. Real costs increased slightly and efficiency
overall was negative. Royal Mail did not achieve its target productivity range of 2-3% or offset the
increases in pay with gross hour reduction. We continue to believe that efficiency gains are crucial in
ensuring the sustainability of the universal service.

Profitability of the part of Royal Mail that provides the universal service declined. Royal Mail’s
Reported Business EBIT margin was 1.6% for 2018-19 (on a 52-week basis), though the financial
position and financial health metrics (including credit rating) of the Royal Mail Group do not indicate
any short-term financial health issues.

The longer term sustainability depends on a range of factors,
including the extent to which the revenue growth and Royal Mail’s transformation programme, set
out in its five-year strategy, can be delivered.

Recent developments

1.1 In May 2019, Royal Mail set out its five-year strategy, which envisaged a Group revenue
growth of 2-3% per year from 2019-20 to 2023-24.1 Royal Mail’s strategy has a strong focus
on parcels, which is in line with the strategy of comparable operators internationally to
transform their operations from a letters to a parcels business. If the implementation of the
new strategy proceeds as Royal Mail foresees, Royal Mail expects its UK business to return to
revenue growth by 2023-24.

1.2 We note that the strategy is subject to some risks, notably the outcome of discussions
between management and unions on how this will be delivered, as well as broader market
and macro-economic risks which could affect Royal Mail’s ability to grow parcel revenues
at the rate envisaged and/or suppress overall levels of demand for letters and parcels.

1.3 In its half-year results announcements, Royal Mail noted that transformation is running
behind schedule and is likely to impact productivity in the second half of the year. Royal
Mail also revised its forecast for the full year’s letter volume decline, expecting letter
volumes to decrease by 7-9% in 2019-20, instead of 5-7% as previously forecast. Royal Mail
stated that, combined with the industrial relations situation and lower than anticipated
productivity gains, its UK business is expected to be break-even or loss making in 2020-21.

1.4 Therefore, we believe that uncertainty remains about the longer-term sustainability of the
universal service. As in previous years, we will continue to monitor the sustainability of the
universal service, and engage with management to understand better how they plan to
mitigate the risks to the sustainability of the universal service.

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[UNION JACK]

Who runs Royal Mail , OFCOM or ROYAL MAIL, if they want efficiency why did they give managers a pay rise and bonus.

[hans solo]

its all part of the great scam involving rm ,all other couriers, cwu ,unite, offcomm ,gvmt ,hedge funds
all stand to make cash through profiteering ,shares , market share,etc
who pays for this US