Royal Mail warns on competition as profits rise

Thursday 22 May 2014 08.26
Royal Mail's group revenue rose 2% to £9.46 billion
Royal Mail's group revenue rose 2% to £9.46 billion

Newly privatised Royal Mail posted a 12% rise in full-year profit today and said it was taking steps to address increasing competition in both parcels and letters. 

The UK postal firm, which had long posted financial losses until two years ago, said operating profit before "transformation" costs - such as IT investments - rose to £671m in the year to March 30.

This was in line with a company-compiled consensus forecast.

Group revenue rose 2% to £9.46 billion, helped by a 7% rise in parcel sales - now worth 51% of turnover - offsetting an expected 2% fall in UK letter revenue, as customers increasingly turn to email and messaging. 

Addressed letter volumes fell 4%, while parcel volumes were flat, reflecting increased competition and a switch from weight to size-based pricing that dampened demand. 

Royal Mail's growth prospects continue to split analyst opinion, with differing views over its ability to manage declining letter volumes and increasing competition. 

Chief executive Moya Greene said that competition in parcels had intensified in the last year as the market booms on the back of online shopping, while its letters business could suffer financially if regulator Ofcom does not intervene with rival TNT Post UK's plans to roll out a rival direct mail delivery service. 

The privatisation of Royal Mail was heavily criticised for short-changing the British taxpayer, with government ministers, banks and advisors hauled before lawmakers to explain why shares in the firm rocketed as much as 87% above the 330 pence price at which Britain sold a 60% stake in October.
              
Shares in the group closed at 575 pence yesterday, valuing the business at £5.7 billion.
              
The firm, which has shed some 50,000 jobs in 11 years to help reduce costs, said it continued to target single-digit revenue growth, margin expansion and underlying free cash flow growth for 2014-15.