22nd Jan 2015 10:44
LONDON (Alliance News) - Royal Mail PLC Thursday said it is confident it will meet its own full-year expectations, after reporting that group revenue was up just 1% in the nine months to December 28, whilst revenue was flat in both its parcels and letters businesses.
The slight overall revenue growth marks a deterioration from the position half way through the mail operator's financial year, when revenue growth had stood at 2%.
However, Royal Mail said it was continuing to bear down on costs, and expects underlying operating costs before transformation costs in its main business will be flat for the full year, as it had expected at the half-year stage.
It said volumes in its UK parcels business were up 3% on the year for the nine-months, better than the 2% growth it reported at the half year thanks to import parcels, while addressed letter volumes were down 3%, flat on the earlier performance.
It said parcel volumes in the key December trading month were up about 4% on the year, as it handled about 120 million parcels.
The flat revenue position in its parcels business is an improvement from the half way stage, when revenue was down 1%. At that stage it had warned of increasing competition in the parcels sector, particularly as Amazon Inc launched its own UK delivery network. It said that would reduce the annual growth rate in its addressable UK parcels market to about 1% to 2% for about two years.
In its statement Thursday, Royal Mail said there "continues to be a highly competitive environment in all the major channels."
It said its Parcelforce Worldwide handled 10% more volume than a year earlier, but pricing remained under pressure due to the stiff competition in the express delivery parcel market.
Royal Mail's General Logistics Systems Business, a pan-European parcel delivery service, reported an 8% increase in both volumes and revenue over the nine months. However, it warned that a change to the minimum wage in Germany which came into effect at the start of 2015 could have a "significant" impact in GLS Germany's cost base.
The overall performance met analysts' expectations, and Royal Mail shares were up 4.1% at 448.40 pence Thursday morning, making it the best-performing stock in the FTSE 100 on the day. The stock performance since initial trading after its initial public offering back in October 2013 has been almost static.
Investec said it was retaining a Reduce rating on the stock due to the "considerable new parcel capacity coming into the market in the next 12 months". It said the most recent sales figures were broadly in line with expectations, although it said parcel pricing had been slightly below its own hopes.
Cantor Fitzgerald is retaining its Sell recommendation on the stock, saying that while Royal Mail will benefit from one-off gains like proceeds from the sale of the mail operator's Paddington Mail Centre, it also thinks competition in the parcels market will only stiffen in 2015.
"We are also concerned about employee costs (in the UK and Germany) which are forecast to continue to increase with on-going pay rises and only partially offset by productivity improvements," Cantor wrote in a note to clients.
Royal Mail expects to put out its results for the full-year to March 29 on Thursday, May 21.
By Steve McGrath; [email protected]; @stevemcgrath1
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