Marketing mail revenues are up by 5% at Royal Mail, while its parcels business is being revamped with new options in the face of stiff competition and the adverse affects of Amazon’s own delivery network.
However, the group’s share price fell by 36p, or 7.87%, after it warned about the negative effects of increased competition in its interim results.
Royal Mail sounded a further warning over the future of the Universal Service in the face of “unfettered” competition from companies able to cherry-pick certain services
As an example, it said the expansion of Whistl’s delivery service could hit Royal Mail’s sales by more than £200m in 2017-2018, creating a “material threat” to the Universal Service. The company said: “We think there is an urgent need for a new framework that will secure the sustainable provision of the Universal Service for the future.”
In the group’s interim results for the half-year to 29 September, overall revenues increased by 2% to £4.52bn. Operating profit prior to restructuring costs was £279m (2013: £353m), while underlying margins rose from 6% to 6.2%.
“Transformation costs” associated with its reorganisation programme reduced from £70m to £47m. Royal Mail expects the actions to result in annual cost savings of £70m from 2015.
Sales at UKPIL (UK Parcels, International & Letters) were flat at £3.7bn.
Within the UKPIL business, letter revenues were up 1% to £2.24bn due to price increases and a boost from election mailings in the period – this included 7m campaign mailings and 5m poll cards for the European elections and Scottish independence referendum.
Letter volumes overall declined by 3%, which was less than the anticipated decline of 4-6%.
Marketing mail revenues rose by 5% to £571m. Royal Mail said this was due to two factors: “The improvement in UK economic conditions and the impact of MarketReach, which works with customers to help them improve return on investment from multimedia campaigns”.
Its parcels business is also being impacted by increased competition and price-cutting. Despite the booming e-retailing market Royal Mail’s parcel revenues slipped by 1% to £1.46bn, on parcel volumes that were up 2% at its core network.
Chief executive Moya Greene described the parcels market as “challenging”, and said it was targeting growth in a number of new areas.
This includes more flexibility from Royal Mail about the parcel dimensions it will accept from retailers and online stores, such as poly-wrapped items. “Poly-wrapped clothing and footwear, including returns, can be delivered cost-effectively on foot using trolleys,” it stated.
GLS, its continental parcels, broke through the billion pound barrier as it grew its sales by 7% to just over £1bn.
Royal Mail had previously made an £18m provision over a French competition authority investigation into alleged price fixing in the French parcels market. The regulator is expected to complete its investigation in the latter half of the 2015/16 financial year.
Greene said she was pleased with the group’s overall performance: “Our performance remains in line with our expectations for the full year year. But, as always, this depends on us delivering another great Christmas, for which we are fully prepared.”
Royal Mail also announced an interim dividend of 6.7p.