Royal Mail posts better-than-expected FY results despite lower letter volumes

Royal Mail posted better-than-expected full year pre-tax profits of £538m, despite a 3% fall in addressed letter volumes, as cost controls took effect.

Overall revenues were down 1% to £9.2bn. Parcel revenues rose by the same amount, while volumes in that division climbed 3%.

A final divdend of 15.1p a share will give a total of 22.p for the year, up 5%.

Adjusted operating profits before transformation costs were up 5% to £742m. Adjusted operating profit margin after transformation costs declined by 10 basis points as a result of increased transformation costs due to Royal Mail's cost avoidance and efficiency programme.

The parcels division has suffered due to competitive pressures from sector peers such as UK Mail, FedEx and UPS. Amazon’s expansion of its UK operations provides another stumbling block for Royal Mail.

Analysts said the main issue has been that rivals have opted to push investment in technology while Royal Mail is lagging behind.

Forecasts had estimated a 7.4% increase in pre-tax profit to £430m. The actual figure of £538m was £30m lower than 2015.

Chief executive Moya Greene said Royal Mail had delivered a “resilient performance in challenging markets”.

The company said its Outlook for UK letter and parcel market trends remained unchanged.

It said the UK parcels, international and letters cost avoidance programme was on track and expected to “avoid a similar level of costs in 2016-17 as the prior year”.

“We continue to seek opportunities to drive efficiency, with transformation costs currently expected to be around £160m in 2016-17. Rate of revenue growth in general logistics systems is expected to slow in 2016-17. We expect total net investment spend to be within £550m -£600m per annum in the medium-term,” it said