Royal Mail “delivering results” as profits increase 400% | Post & Parcel

Royal Mail “delivering results” as profits increase 400% | Post & Parcel.

400% increase in profits is no easy feat.  Very impressive.

But both the press release and the article in Post & Parcel clearly stipulate that while parcels, contributing 44% of the revenue, is a loss making operation at this time.

Royal Mail’s 2.2% operating profit margin, though a huge improvement from the 0.4% of the previous year, is still significantly lower than some competitors. (I am currently studying Yamato’s financial statements in detail and theirs indicate that their parcels operations bring in close to 5% operating profit margin.)

Of course no one can argue with Group CEO Moya Green when she says, “We recognise, however, that there is much more to be done.  Our commitment to executing our strategies is key. Our increased focus on the parcels market and our growing international businesses is helping to build a strong commercial future for the Group.”

And now the contrast between USPS, who continues to bleed money just by breathing, and Royal Mail Group will present an interesting comparison study going forward.  For Green to be able to say that RMG no longer has “going concern issues,” is a major step in removing one significant reason to keep the CEO up at night, no doubt.

The Post & Parcel article says that after a 30% retail price increase and 11% for business letters, revenue from parcels increased 10% while volumes went up by 6%. However, the article says, “Royal Mail said its parcel network was loss-making. The company is taking steps to reduce the losses, and said its cost allocation methodology for parcels was under review.”

While  automating letter sorting to delivery sequence increased from 8% two years ago to 75%, the 25% decline in letter traffic over six years means that this efficiency enhancement measure is merely plugging the bleeding a bit, rather than positively contributing to revenue and profit growth.  As such, clearly, ensuring that the growing parcels business turns around to become profit making is a priority focus for GLS.

For both competitors and alliance partners alike, how that will affect the way Royal Mail behaves in the other growth segment of international traffic will be of high interest.