With news out ahead of Royal Mail’s AGM today, it looks like many of our previous tentative Royal Mail predictions are likely to come true. Certainly they’re looking a lot more likely with every day that passes.
Royal Mail announced that parcel volumes are up 34% (177 million more parcels) and parcel revenue up 33.1% year on year. However, addressed letter volumes (ex. elections) is down 28% (1.1 billion fewer letters) with letter revenue down 21.5%.
The problem is that delivering parcels costs more and the mix shift from handling more parcels and fewer letters increased costs in the period by £85 million. On top of that, costs related to COVID-19 (elevated absence, social distancing, additional protective equipment and other costs) were £75 million in the first five months.
Even with people costs being reduced by slashing management and other savings, Royal Mail are confident that they will make a material loss this financial year 2020-21 and will not become profitable without substantial business change.
With all this in mind, Royal Mail say that they are considering three main objectives:
- Retain the USO (Same price to deliver across the UK)
- Consider demand for a seven day a week parcel service
- Retain a next day letters service during the business week
“These findings tell us that the best way to ensure the Universal Service continues to meet our customers’ needs is to rebalance our service model more towards the growing parcels market, particularly urgent parcels and urgent letters. We are currently exploring what a rebalanced Universal Service might look like. We remain committed to the universal, affordable “one price goes anywhere” nature of the USO, but we would like to deliver the items that customers want more often, not less. To do that we need a regulatory system fit for the future rather than the past.”
– Royal Mail
Royal Mail Predictions – What it means for you
I know more than a few online retailers who would rejoice at the thought of parcels being delivered seven days a week but there’s a kicker on the letters side with the hint that Saturday letter deliveries could be dropped. Frankly I don’t know too many people that would cry if their credit card bill was delayed until Monday if it meant their online purchases arrived on Saturdays and Sundays.
Royal Mail are also facing a deeper crisis and that’s a break up with the most likely outcome being to spin off the profitable GLS arm. Recently Czech billionaire Daniel Kretinsky, through his Vesa Equity Investment SARL business, upped his stake in Royal Mail to become their biggest shareholder (approx 13.1%). It’s thought that he could be interested in seeing GLS spun off and with his shareholding he’s got a decent influence on any such decision.
This is all pretty much going down the route we predicted back in June when we mooted a potential sale of GLS and revamped USO, so there are no real surprises. The news and hints from reading between the lines today are just an indication that things are bubbling away in the background and the only real question is how long it will take for, what looks like, the inevitable to happen.