Royal Mail cuts costs to offset letter decline

The boss of Royal Mail has vowed to keep cutting costs in the business, as letter posting continues to dwindle.

The postal operator has revealed flat revenues in the first three months of the year, as a 5 per cent decline in letter volumes was offset by a slight increase in parcel volumes. A trading update released ahead of Royal Mail’s annual meeting on Thursday showed that letter revenue shrank by 4 per cent year-on-year, while parcel revenue climbed by 2 per cent.

The company described the letters market as “challenging” despite the withdrawal of competitor Whistl, owned by the Dutch company PostNL, from this area in May.

Moya Greene, the chief executive, said: “Our trading environment remains challenging and we are stepping up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.”

Royal Mail’s European parcels arm performed better than expected, with revenues up 8 per cent after business improved in Italy and Germany. The company noted that new German minimum wage legislation could have a small impact on its margins in that country.

In May Royal Mail said it expected to deliver cost savings of almost £80m this year, almost double the £42m achieved last year.

Analysts described the trading performance for the quarter as “in line” and better than expected, considering the activities of new entrants into the parcels market such as Amazon, which had previously been Royal Mail’s biggest single customer.

Standard & Poor’s, the credit rating agency, also confirmed its BBB rating for Royal Mail, saying the former monopoly provider’s outlook was stable.