Royal Mail has reported that its annual operating profits more than halved in the year to March 31, dropping to £96 million from £198 million the previous year, driven by a surge in labour costs. Owner International Distribution Services (IDS), acquired last year by Czech billionaire Daniel Kretinsky, said employee costs rose 5.5% over the period, including a 4.2% pay increase for frontline staff and a £133 million national insurance contributions hike.
Underlying Earnings and Revenue
On an underlying basis, Royal Mail earnings improved to £5 million from £2 million a year earlier, as revenues increased 2.6% to £8.4 billion. However, the wider IDS group saw underlying earnings slump by a fifth to £222 million, as its GLS parcel arm faced regulatory changes in Italy and a challenging trading environment in Canada. GLS earnings fell 17.1% to £237 million over the year.
Pre-Tax Profits and Acquisition Costs
IDS overall pre-tax profits fell by more than two-thirds to £141 million from £429 million the year before. The company incurred an additional £57 million in costs related to the £3.6 billion takeover by Mr Kretinsky’s EP Group, on top of £28 million in acquisition costs from the previous year.
Volumes and Universal Service Overhaul
Royal Mail’s parcel volumes rose 7% to 1.4 billion, but addressed letters fell 10% to 5.7 billion. The group said the decline reinforced the need to overhaul the universal service. Royal Mail is rolling out changes nationwide that will see second class post delivered every other weekday, with Saturday service being scrapped across the UK, following an agreement with trade unions.
Service Levels and Ofcom Investigation
Royal Mail is under pressure to improve service levels, with regulator Ofcom launching an investigation into the firm’s failure to meet delivery targets. In May, Royal Mail revealed it had missed targets for another year, achieving 75.7% of first class mail arriving the next working day and 90.2% of second class mail delivered within three working days. It was fined a record £21 million by Ofcom in October last year for missing targets in 2024/25.
CEO Statement and Parcel Locker Expansion
Martin Seidenberg, group chief executive at IDS, said: “Following Royal Mail’s agreement with the unions we are rolling out universal service changes across the UK which will lead to a more efficient, reliable and sustainable service for our customers. GLS continues to grow revenue and parcel volumes despite challenging conditions in parts of Europe, underlining the resilience of the group and the strength of our international network.” IDS said it is continuing to ramp up its network of parcel lockers, with out-of-home parcel volumes up 40% over the year for Royal Mail.
