Royal Mail’s parent company has revealed that rising revenues and improved efficiency helped offset the impact of soaring employment costs, despite mounting pressure from falling letter volumes and ongoing service failures.
International Distribution Services (IDS), which was acquired last year by Czech billionaire Daniel Kretinsky, said Royal Mail’s underlying earnings increased to £5 million in the year to March, up from £2 million a year earlier. Revenues rose 2.6% to £8.4 billion even as higher National Insurance costs weighed on businesses across the UK.
The improvement came despite a sharp decline in traditional mail. Addressed letter volumes fell 10% to 5.7 billion items, while parcel volumes rose 7% to 1.4 billion as consumers increasingly embraced online shopping and delivery services.
However, the wider IDS group saw earnings fall by more than a fifth to £222 million after its international parcel business, GLS, was hit by regulatory changes in Italy and difficult trading conditions in Canada. GLS profits dropped 17.1% to £237 million.
The continued collapse in letter volumes has strengthened Royal Mail’s argument for reforming the universal service obligation. The company is pressing ahead with plans to deliver second-class letters every other weekday and end Saturday second-class deliveries nationwide following a breakthrough agreement with trade unions.
The changes come as Royal Mail faces intensifying scrutiny over its performance. Regulator Ofcom launched a fresh investigation earlier this month after the postal operator missed delivery targets for another consecutive year.
Royal Mail delivered just 75.7% of first-class letters the next working day during the year to March, well below regulatory requirements, while 90.2% of second-class mail arrived within three working days. Last year, Ofcom imposed a record £21 million fine on the company for previous failures.
Group chief executive Martin Seidenberg said the nationwide rollout of agreed service changes would create a “more efficient, reliable and sustainable” postal network.
The company is also betting heavily on the continued growth of ecommerce, expanding its parcel locker network across the UK. Royal Mail said out-of-home parcel volumes surged 40% over the past year as customers increasingly opt for collection points and automated lockers rather than home deliveries.
The results underline the challenge facing Royal Mail: adapting a centuries-old letters business to a parcel-driven future while meeting regulatory demands and containing rising employment costs.
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