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Royal Mail Group delivers financial results PDF Print E-mail
Friday, 09 May 2008
• Group external revenue of £9,388million, up 2.3%

• Group operating profit before exceptionals of £162million, down 30.4%

• Royal Mail Letters recorded a loss of £3million due to a sharp decline in mail volumes, the continuing impact of full competition and increased levels of investment

• The Universal Service made an estimated loss - for the first time - of around £100million with the overall price controlled area of Royal Mail’s business making a loss of around £200million

• GLS and Parcelforce Worldwide saw a significant rise in revenues, with profits remaining constant due to increased, volume-driven costs and competitive pressures

• Post Office Limited recorded an overall loss of £34million, this was an improvement due to the full year impact of the Social Network Payment

• Landmark agreements on pay, pensions and modernisation

• Cash contribution by the Company to Pension Plan of more than £800million Commenting on these results Adam Crozier, Royal Mail Group’s Chief Executive, said:

"The £162million operating profit is a robust financial performance - ahead of expectations - in a year when we faced many difficult challenges. But we secured a landmark agreement on modernisation and pensions and are pressing ahead with the vital investment in and modernisation of Royal Mail Letters to ensure it competes successfully in a market where volumes are falling and competitive pressures are increasing."

The results are dominated by the profit fall in the Letters business where overall market volumes have declined by 3.2% year on year in line with other major European postal markets. Royal Mail Letters is handling three million fewer letters a day than a year ago, and revenues have fallen further as customers down-trade to lower priced products and rivals handle increasing volumes. We are also continuing to pay huge sums into the Royal Mail Pension Plan - more than £800million in cash last year. A key achievement of last year, however, was to put in place and agree with our people a strategy to modernise and transform the Letters business with heavy investment in our people and technology that will deliver efficiencies and provide the platform for new and more flexible products for customers - alongside the agreement on major pension reform which took effect on 1 April 2008.

The action taken to reform the Pension Plan, together with the establishment of a £1billion escrow account for the sole benefit of the Plan, if needed, has enabled the Group to have an achievable funding programme based on the last actuarial valuation of the deficit of £3.4billion in March 2006. However our estimates indicate that the actuarial deficit has since increased significantly due to market changes, further underlining how pensions remain a significant and volatile risk to the Group. The continuing heavy cash calls on the Company - more than £800million in 2007-08 - to service the Plan and to pay the deficit - demonstrates again how crucial it is for the Company to succeed in modernising the Letters business and provide a sustainable future for the Post Office network.

Mr Crozier added: "During the last year we also saw strong revenue growth in both Parcelforce Worldwide and GLS, the Group’s UK and European parcels businesses, both of which operate in tight, highly competitive markets. These businesses make an important contribution to Group profitability.

"In the Post Office, we are now more than halfway through implementing the Government’s decision to reduce the size of the network by up to 2,500 branches in line with the funding provided. We continue to do all we can to implement the programme as sensitively as possible, and at the same time, we are launching new products and services to earn as much revenue as possible for the Post Office and to keep branches open as income from traditional business declines."

Allan Leighton, Royal Mail Group’s Chairman said:

"Overall, this has been a year when we did not shirk difficult challenges and decisions and when we began taking the crucial next steps to put the Company in a stronger position to tackle the tough market conditions we face. Putting our customers first continues to drive everything we do and we remain determined to do all we can to provide the best possible postal, retailing and financial services and products at consistently high quality for the whole country. Our financial performance would not have been possible but for our determination to drive greater efficiency across the business and to develop services that meet the needs of our customers who today have real choices - both within the postal industry and the wider communications market."

"The Group began its journey of transformation in 2002 when change on the scale we have already achieved was regarded by many as unthinkable and unachievable. At that time, we were failing quality of service targets repeatedly, the Company was losing more than £1million a day and without change, our chances of succeeding in a changing and opening market were non-existent.

"We’ve demonstrated we can deliver consistent, target-beating quality of service; the Group is profitable and has the funding in place to modernise; strategies are underway to achieve a transformation of the Letters business and to create a sustainable Post Office network. However the Company continues to face significant risks, which unless tackled will impact on its performance."

Royal Mail is currently preparing, like other interested parties, a further submission to the independent review of the postal market and on how the one-price-goes-anywhere Universal Service can be maintained in an increasingly competitive market that’s now open to full competition.

Mr Crozier said: "The Universal Service is a huge asset for Royal Mail and for the nation as a whole. It is part of the fabric of our society and is vitally important both to social cohesion and to the UK economy. But it is now in the red for the first time - making an estimated loss of around £100million last year while the overall price controlled area of our business made an estimated loss of around £200million. So it is vital that we have the opportunity for a real debate about how the Universal Service should be financed and sustained going forward. We welcome the interim report of the independent review and share the belief as set out in the report that the Universal Service must be sustainable, and that competition should benefit all customers. We have a vision of how that can be achieved.

"Our vision is to achieve a high quality, efficient and profitable Universal Service, focused on our social customers and SMEs, and forming the backbone of an innovative fully competitive business mail market - provided by an efficient, transformed, integrated and lightly regulated Royal Mail competing with a variety of rivals, both wholesale and end-to-end. Central to achieving that vision is the need to continue to take and execute the often difficult decisions that will turn Royal Mail into a world class postal services company competing successfully in the wider communications market."
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