22nd Nov 2013 11:38
LONDON (Alliance News) - The UK postal market regulator Friday said recently privatised Royal Mail Group PLC had become more financially secure, but it must improve its service after missing key performance targets or face fines in the future.
The regulator Ofcom said Royal Mail had missed a requirement to deliver 93% of all First Class letters on the day after collection, reaching 91.7%. The company is also required to meet a target of 91.5% next-day delivery in almost all of the UK's geographic postcode areas, but fell well short, meeting the level in only 62% of the required postcodes.
Royal Mail met its requirement to deliver 98.5% of Second Class letters within three days of collection, and either exceeded or narrowly missed targets relating to areas such as special delivery, parcels and delivery to the correct address.
One of the concerns raised by critics of the Royal Mail privatisation was that Royal Mail would further reduce services to far-flung areas of the UK because the business is less profitable.
"Ofcom is concerned about Royal Mail's failure to meet certain service targets, and has made clear to the company that it must take all necessary steps to meet these in future," the regulator said in a statement.
"Ofcom will continue to monitor Royal Mail's performance closely. Should it miss the targets in future, Ofcom will consider opening a formal investigation which could result in enforcement action, including the possibility of fines," it added.
Royal Mail was listed in October, and its shares soared in the aftermath. However, the former state-owned postal monopoly it is still bound by regulations governing the postal service and the requirement to meet service quality targets.
Ofcom said Royal Mail's financial security had improved because the regulator had allowed it to raise stamp prices, although it retained a cap on second-class mail so that stamps remained affordable for the less well off.
It said the profit margin in the regulated part of Royal Mail's business rose to 2.6% in the year to March 2013, partly thanks to the increase in stamp prices, an improvement on the 0.5% decrease last year and the highest margin for the last five years.
"This is closer to the indicative 5-10% range which Ofcom considers is consistent with a reasonable commercial rate of return for a financially sustainable universal service in the longer term," it said.
Ofcom reiterated that it believes an increase in parcel volumes would not have been sufficient to offset an overall decline in addressed mail alone.
Royal Mail will release its results for the first half of the current financial year next week.
Ofcom also noted that competition in delivery from other operators still only accounted for less than 1% of total volumes in the UK postal market in the last financial year. This was despite an increased presence from competitors such as TNT Post UK.
Royal Mail shares were down 1.4% at 537.615 pence Friday morning.
By Steve McGrath; stevemcgrath@alliancenews.com; @SteveMcGrath1
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