Customer Behaviour

Royal Mail has posted a fall in half-year earnings and said it was keeping a close eye on the economy after the Brexit vote hit marketing mail.

The group said uncertainty surrounding the referendum saw marketing activity reined in across the UK, with revenues from advertising mail down 8% in its first half.

This contributed to an 11% tumble in underlying earnings across its letters and parcels business, to £247 million in the six months to September 25.

But it saw a better performance in its European parcels business, General Logistics Systems (GLS), where operating profits leapt 25% to £89 million.

Group-wide underlying earnings fell 5% to £320 million in the first half, but chief executive Moya Greene said it was a “resilient performance against a backdrop of low inflation and highly competitive markets”.

Royal Mail also announced plans to ramp up cost savings, with a new target of £600 million a year, up from £500 million previously.

It added: “As always, our performance for the full year will be dependent on the important Christmas period.”

Plans for the festive surge in mailings include hiring another 19,000 temporary staff and opening nine temporary parcel sorting centres.

Royal Mail said letter mailings – in particular advertising letters – were closely linked to the performance of the wider economy.

“We are monitoring developments in the UK economy closely as we have already seen some impact of the softer economic conditions on our marketing mail revenue,” it said.

Royal Mail saw the numbers of addressed letter mailings across the UK fall 4% in its first half, which it said was within its expectations for a drop of between 4% and 6% over the year.

Letter revenues fell 3%, but turnover from parcel deliveries lifted 3%.

It said it was still being hit by last year’s rollout of Amazon’s delivery network, but was beginning to replace the lost revenues by boosting its business-to-business account parcels offering.

It said account parcels, excluding Amazon, grew 5% in the half-year.

As part of the group’s new cost savings target, it will strip out around £225 million in costs from its letters and parcels arm in the current financial year, reducing underlying costs in the division by up to 1%.

The group also said it plans to slow down spending, having made significant investment over the past five years in IT systems and overhauling its network.

It will spend no more than £500 million a year compared with £615 million on average over the past three years.

Shares in Royal Mail fell 2%, but analyst Gerald Khoo at Liberum said the firm’s half-year results were “not as bad as feared”.

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