19th May 2016 11:42
LONDON (Alliance News) - Royal Mail PLC shares declined Thursday after the letters and parcels group posted a sharp fall in pretax profit, as the recently privatised company continues to cut costs to improve margins within an increasingly competitive postal industry.
Royal Mail shares were down 3.6% midday Thursday to 489.90 pence, one of the worst performers in the FTSE 100. The stock remains up 10% in the year to date, however.
The FTSE 100 postal and logistics operator said pretax profit for the 52 weeks to March 27 was GBP267.0 million, down from GBP400.0 million the year earlier, due to the costs related to its ongoing restructuring. Stripping out those costs and in constant currencies, operating profit grew to GBP742.0 million in the financial year from GBP740.0 million the year before.
Royal Mail declared a total dividend for the year of 22.1 pence, up 5.2% from 21.0p the year before.
The group said the UK parcels market, which has grown substantially amid the rise of online shopping in recent years, remains among the most competitive in Europe. Though it expects UK parcel market volume to increase over the medium term, the growth of Royal Mail's addressable market will depend on the expansion of Amazon Logistics, the delivery service owned by US e-commerce giant Amazon.com Inc.
Royal Mail said it has won new delivery accounts from retailers such as John Lewis, Marks & Spencer and Waterstones, which have offset volumes lost to Amazon, but prices are coming under pressure as other delivery services add capacity, increasing competition in the market.
Revenue edged down to GBP9.25 billion in the recent financial year from GBP9.33 billion the year before, again hit by currency movements and by declining volumes in Royal Mail's letters business, which offset growth in parcels volumes. Total UK revenue for the year fell 1.0%, with a 1.0% rise in parcels revenue offset by a 2.0% fall in letters revenue.
Parcels volume grew 3.0% in the year, helped by continued growth in import parcels, new account contract wins, and a strong performance for the Parcelforce Worldwide business. Parcels revenue, however, failed to keep pace with the growth in volumes due to a weaker mix, driven by a decline in high average unit revenue parcels.
Address letter volumes, meanwhile, excluding election-related mailings, declined 3.0%, slightly better than forecast primarily due to a return of direct delivery volumes, Royal Mail said.
Royal Mail said the outlook for the UK business remains unchanged.
Volumes for GLS, the UK group's pan-European logistics network, grew 10% in the year, but sterling revenue for the business was held back by the weak euro. Still, revenue at GLS grew 9.0%, with good performances in all regional operations. Royal Mail expects revenue growth for GLS to slow in the current financial year.
Royal Mail said its cost-reduction programme is on track and said productivity in its UK collections, processing and delivery operations improved 2.4% in the year, within the target range of 2.0% to 3.0% set by the company. In total, Royal Mail's cost-cutting efforts resulted in 3,500 employees leaving the UK business over the course of the financial year.
Despite the improvement in productivity, Royal Mail noted it missed its 93% First Class mail target, with 92.5% delivered the next working day. The group is still awaiting the outcome of UK media and communications watchdog Ofcom's review of its regulation.
Royal Mail said its cost-reduction programme is on track, and it expects to take out a similar level of costs from the business in the current financial year as in the 2016 financial year.
"We have delivered a resilient performance in challenging markets. Group revenue was up 1% and our strategic focus on costs resulted in a 1% decline in our UK underlying costs. We continue to invest in our transformation and initiatives to support growth," said Chief Executive Moya Greene.
By Sam Unsted; [email protected]; @SamUAtAlliance
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