Royal Mail profits plunge, says Amazon is hitting growth

Royal Mail plc has posted a 21% decline in half-year profits, and cites Amazon’s attempts to deliver more of its own parcels as the main reason for weak growth.

Royal Mail said it was halving its UK parcels growth guidance to between one and two percent following the online retail giant’s new delivery focus.

The British postal service, which was established in 1516 and privatized in 2013, said its pre-tax profit for the six months to September 28 fell to £218 million because of fierce competition, pension charges, and a number of other costs. During the same period last year the company made a pre-tax profit of £233 million.

Overall revenue increased by 2%, UK parcel volumes rose by 2% but revenues declined by 1%, and letter volumes fell by 1% while revenue was up by 1%.

Election pamphleteering, particularly business related to the Scottish Referendum, helped halt any further decline in the letter volume figure.

Regarding rival delivery firms, Ms. Greene said “The threat is now.”

Royal Mail says its government-mandated Universal Service is being threatened by rival delivery firms. The Universal Service supposedly guarantees delivery of letters to the whole country.

Universal Service terms must change

The Government has long been urged by Royal Mail to reconsider the terms of the Universal Service obligation, which for a fixed price ensures mail is delivered everywhere, six days per week.

Royal Mail said Whistl (formerly known as TNT) will likely reduce its revenue by £200 million over the next three years.

GLS, the company’s international delivery service, saw revenue increase by 7% in the first half of the fiscal year.

In a statement accompanying the “Royal Mail plc Half Year Results 2014-15”, CEO Moya Greene said:

“I am pleased with our overall performance. We have delivered two per cent revenue growth together with margin expansion, in line with our expectations. Our tight cost control meant that UK costs were flat on an underlying basis and we are expecting a similar performance for the full year. Looking further ahead, we are targeting a flat or better underlying UKPIL cost performance in 2015-16.”

“The UK parcels market remains challenging. As the pre-eminent UK parcels delivery company, we are targeting a number of new, growing areas, and delivered two per cent volume growth in a competitive market. We had a better than expected performance in UK letters. GLS, our European parcels business, demonstrated a strong performance with better than expected volumes in domestic and export parcels.”

“Our performance remains in line with our expectations for the full year. But, as always, this depends on us delivering another great Christmas, for which we are fully prepared.”