Royal Mail warns of price increases to combat rising inflation

Royal Mail has said there is a “more urgent” need for the company to adapt to changing consumer behaviour after the pandemic as it reported a slide in profits and warned it would lift prices to counter the effects of climbing inflation.

The UK postal service pointed to “significant headwinds” ahead as it highlighted the effects of declining parcel volumes, rising wage, energy and fuel costs and dwindling consumer confidence. The company has already raised prices and warned of further increases to come.

Royal Mail said in a statement on Thursday that it would seek to “mitigate” the impact of higher costs through “price increases and growth initiatives”. It also aims to cuts costs by more than £350mn across “all areas of the company”, including through further automation.

“As we emerge from the pandemic, the need to accelerate the transformation of our business — particularly in delivery — has become more urgent,” said chief executive Simon Thompson.

Royal Mail had to adapt “much more quickly to a world increasingly dominated by parcels”, he added. “We have no time to waste.”

The company said parcel demand in the UK had fallen 7 per cent last year and it expected “a slowdown in volume growth and margin pressure in 2022-23”.

Shares in Royal Mail were down more than 13 per cent in lunchtime trade in London amid a broader market sell-off on Thursday. The company’s stock is down 43.2 per cent this year.

Thompson made his comments as Royal Mail reported group revenue for the year to March was 0.6 per cent higher year on year at £12.7bn, driven by the performance of parcel sorting subsidiary GLS. At Royal Mail revenue dropped 1.6 per cent year on year as delivery volumes fell after pandemic curbs were eased.

Adjusted operating profit rose 8 per cent to £758mn in the 52 weeks to March, but on a reported basis pre-tax profit fell 8.8 per cent to £662mn.

The company said it had completed a £400mn return to shareholders announced last year that had been prompted by a surge in profits on the back of the coronavirus-induced boom in online shopping.

Describing the company as being at a “crossroads”, non-executive chair Keith Williams said that while Royal Mail was “making progress in some areas”, it needed to “deliver real efficiency savings with a financial benefit this year and beyond”.

Royal Mail in January announced plans to scrap 700 management roles at a cost of £70mn. The company is in talks with unions in the UK over a new pay deal and said it had no plans for further job cuts.