Falling letter volumes hit Royal Mail profits

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Consumer mail now accounts for a mere 12 per cent of Royal Mail’s business, chief executive Moya Greene has revealed as the group unveiled a £259m loss for the year.

“The continued structural decline in the number of items of mail in the UK is well documented. Single piece mail volumes have declined by 40 per cent in the past five years. We anticipate total mail volumes continuing to decline by around 5 per cent a year for the foreseeable future,” she said.

Operating profit after modernisation costs, which Greene says is the new benchmark for the business, fell from £180 million last year to £39 million at the end of this financial year.

Sales in the Letters, Parcels and International business were down £121m to £6.86bn, and operating profit after modernisation costs of £20m in 2009-10 turned into a loss of £120m last year.

The best performing division was General Logistics Systems (GLS), the continental parcels business, which saw operating profit rise 5.3 per cent to £118m on sales broadly unchanged at £1.49bn.

Royal Mail invested some £400m in business modernisation process in 2010 but it also needs downsize to reflect the fall in the letters market.

The scale of the losses puts a question mark over government plans to privatise the business. Potential investors are unlikely to find it an attractive proposition until it can offer a realistic return.

In January, MPs approved government plans to open the way for private sector investment in Royal Mail.

At the time, business secretary Vince Cable said: “Upon taking office the government realised it had to move swiftly to tackle the challenges facing Royal Mail and the Post Office to ensure the future of the important services they both provide. We’re absolutely determined to secure the future of these two proud institutions.”

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