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Royal Mail monitoring UK economic growth amid fears of Brexit slowdown

Published 19/07/2016

Royal Mail revenues from letters were 3% lower in the quarter, but overall group turnover was 1% higher
Royal Mail revenues from letters were 3% lower in the quarter, but overall group turnover was 1% higher

Royal Mail said it is keeping a close eye on Britain's economic growth amid fears of a sharp slowdown following the Brexit vote.

The group said changes in gross domestic product were key "drivers" for its letter and parcel business and confirmed it was " monitoring the situation".

Royal Mail, which was fully privatised last October, posted a first-quarter trading update showing further falls in letter postings, with volumes down by 2% in the three months to June 26 - or a decline of around 4% with EU referendum mailings and direct delivery returns stripped out.

Revenues from letters were 3% lower in the quarter, but overall group turnover was 1% higher in a "quieter trading period", according to Royal Mail.

Its parcel business helped offset some of the ongoing decline in letters, with volumes and revenues both 2% higher thanks to an "improving trend" in demand from consumers and small businesses.

Chief executive Moya Greene said: "In what is traditionally a quieter trading period for the business, we saw no material change in overall trends."

She added: " We continue to face the challenges caused by the current low inflationary environment and our highly competitive markets."

Royal Mail's European parcels business, GLS, which accounts for almost a sixth of group revenues, saw revenues and deliveries both rise 13%, boosted by the timing of Easter and other public holidays in Europe.

Rob Byde, analyst at Cantor Fitzgerald, said it was a "cautious" trading statement from Royal Mail.

But he said Royal Mail should weather any wider woes in the economy following the EU referendum vote.

" The outlook for the UK economy in the short term is less certain, but we think that Royal Mail is a good potential safe haven," he said.

Royal Mail avoided harsh regulatory controls in May when Ofcom stopped short of imposing a price cap following a review into the postal market.

But Ofcom did propose measures aimed at improving competition in the " access market", where rival operators collect and sort mail before handing it over to Royal Mail to complete delivery.

On the Ofcom review, Royal Mail said in its latest trading update it was " actively participating in the consultation process and will be providing a submission to Ofcom".

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