In a trading update covering the three months to 29 June the group said parcels revenue for the full year was now likely to be lower than expected.
However, it stopped short of issuing a profits warning, with chief executive Moya Greene stating: “… through cost control measures and with continued good letters performance we expect to be able to offset the impact on profit such that our overall performance would remain in line with our expectations for the full year.”
A management reorganisation programme at the business is set to deliver annual savings of £25m.
Royal Mail shares fell 8.6p to 457.4p following the news.
Royal Mail also said that Amazon’s decision to change the terms of its free delivery service, and to carry out more deliveries using its own network, had reduced the amount of parcel business available with competitors “aggressively reducing prices” in order to fill capacity.
Although UK parcel volumes grew 1%, revenues declined by 1% due to the highly-competitive conditions.
A raft of initiatives to attempt to counter the issue include a new Sunday delivery service by Parcelforce to capitalise on growth in online shopping, and longer weekend opening hours to allow etailers more time to put parcels into the system.
Luxury store Fortnum & Mason was the first retailer to sign up for the new Sunday Parcelforce service, with chief executive Ewan Venters citing a “huge appetite” from the store’s customers for weekend deliveries.
Royal Mail’s continental parcel delivery service GLA – subject to an investigation in France by the competition authority there, along with TNT Express and FedEx – was the stand-out performer, with both sales and volumes at the operation increasing by 6%.
There was no update on the enquiry, which was said to be at an “early stage”.
Group sales rose by 2%. At its UKPIL letters and parcels business sales were up 1% overall.
Addressed letter volumes fell by just 3%, better than Royal Mail’s projections of 4-6% decline per annum for this type of mail. The group said the lower rate of decline was mainly due to the improvement in UK economic conditions. Revenues rose 3% because of the latest postal price increases.
Last month Royal Mail warned Ofcom that the Universal Service Obligation (USO) was under threat, due to “cherry picking” by rival TNT Post.
The group will hold its first AGM post-privatisation on 24 July, at which shareholders are expected to question both the future of the USO and Greene’s £1.35m pay package.
