Royal Mail monitors GDPR effect as letter declines accelerate

Group underlying revenue rose 2% in the three months to 24 June, Royal Mail said in a trading update. UK parcels, international and letters revenue fell 1% as parcel revenue rose 6% and total letter revenue dropped 7%. Excluding the effect of elections a year earlier, letter revenue fell about 5%.

Addressed letter volumes, excluding election mailings, fell 6%, a steeper decline than the 5% in Royal Mail’s last financial year. The company said some of its customers were uncertain about how to respond to GDPR, rules introduced in May that set out how companies can use their customers’ data, including for marketing purposes such as junk mail.

"We are monitoring any potential impact closely," Royal Mail said. "We continue to work with customers to find solutions for their marketing mail needs."

Royal Mail stuck to its outlook for addressed letter declines of 4-6% a year though it said volumes could fall faster than that at times.

"Due to the potential impact of GDPR and, or, if business uncertainty persists, we still expect to be at the higher end of the range of decline for 2018-19 and may fall outside the range in a period," the company said.

Royal Mail is seeking to manage a long-term decline in letter writing as email and social media take over from letters while capitalising on the growth of parcel post with the rise of internet shopping.

Michale Hewson, chief market analyst at CMC Markets, said: "Royal Mail’s latest results didn’t contain too much in the way of surprises with the letters division containing to act as the 'ball and chain' around its profitability, while on the positive side the parcels division offset some of this."

Rico Back, who took over as Royal Mail chief executive on 1 June, said: "Overall, trading in the first three months of our 2018-19 financial year was in line with our expectations. Our performance in UK letters and parcels was as anticipated and GLS continued to perform strongly."

Back said Royal Mail was continuing to discuss new pension arrangements with union officials after closing its final salary pension plan in 2018. Back could face a shareholder revolt at Royal Mail's annual meeting on the day of the trading update over decisions to pay him more than his predecessor Moya Greene and award a payoff to Greene.

The company said a parcel volume increase of 7% was mainly driven by more business from retailer account customers.

Parcelforce Worldwide volumes rose 4% as contract customers sent more items than expected. But after an unidentified customer withdrew from the market growth will be slower in the rest of the year.

GLS, Royal Mail’s pan-European parcels business, increased underlying revenue by 11%. Royal Mail said GLS margins may be squeezed by labour market pressures in many markets.

Russ Mould, investment director at AJ Bell, said: “The future of Royal Mail is all about dealing with fierce competition on the parcel deliveries side and achieving productivity improvements across the business, such as through increased automation. Rico Back may be under pressure from shareholders to find ways to accelerate the pace of change in the business."