22nd May 2014 15:19
LONDON (Alliance News) - Royal Mail PLC saw its shares fall nearly 10% Thursday, after it warned that competition is increasing in the fast-growing parcels market and it is facing a big potential hit from rival TNT Post UK's plans to expand its own letter delivery service to new UK cities.
Reporting its first set of annual results since it was privatised last October, the company said its pretax profit excluding gains from reforms of its pension schemes rose to GBP363 million in the 52 weeks ended March 30, from GBP304 million a year earlier, as revenue increased to GBP9.46 billion, from GBP9.15 billion.
Its pretax profit including all items rose to GBP1.67 billion, from GBP283 million, as it booked a GBP1.35 billion gain from pension plan changes.
Revenue growth was again driven by the growth in online shopping, which is pushing up Royal Mail's parcels revenue, more than offsetting continued declines in letter volumes. Parcel volumes were actually flat in the year, but a new sized-based pricing plan meant parcels revenue rose 7% to GBP3.16 billion.
Letters revenue was down 2%, with addressed letter volumes down 4%, although that was better than the company had expected.
Still, the company's shares were down 9.7% at 519.37 pence Thursday afternoon, the biggest decline on the FTSE 100, after the company's warning about intensifying competition.
"The competitive environment on the parcels side is more intense. We are taking steps to remain the leader in this growing market," Chief Executive Moya Greene said in a statement.
Its second warning was about rival TNT Post UK's aim of expanding its own letter delivery teams outside London, Manchester and Liverpool to other cities like Birmingham. TNT wants to be able to cover 42% of UK addresses by 2017 itself, according to Royal Mail.
It said that it estimates of the impact of TNT Post UK's plans could reduce Royal Mail revenue by over GBP200 million in 2017-18, and it would struggle to offset this through cost cutting because of its regulatory obligation to provide a mail service to every address across the UK.
It called on regulator Ofcom to intervene, warning that the issue could impact its ability to be able to sustain the so-called Universal Service.
"TNT Post UK can cherry-pick easy-to-serve urban areas; delivering easy-to-handle post to homes less frequently than Royal Mail and to no defined quality standard," Royal Mail said.
"Moreover, we are also required to deliver any items TNT Post UK does not consider economic to deliver itself. If TNT Post UK is successful in delivering its stated objectives, this could threaten the fundamental economics of the Universal Service," it added.
Royal Mail said it is targeting single-digit revenue growth, margin expansion and underlying free cash flow growth in the current financial year
Royal Mail reiterated that it will pay a final dividend of 13.3 pence per share.
The figures were in line with analysts' consensus forecasts, although Shore Capital downgraded the stock to Hold, from Buy, saying revenue was GBP48 million below its own expectations and it was worried about the warnings of intensifying competition in the parcels business.
The earnings came a day after Royal Mail said it will pilot a Sunday afternoon parcel service at its busiest delivery offices this summer, a move that comes in the wake of its recent deal with unions that including an agreement that staff would be more flexible in their working practices.
The company said the pilot would be run at about 100 of its delivery offices with the highest parcel volumes, meaning they're open for collection seven days a week. It will also trial a parcel delivery service, but only in London, within the M25 motorway, initially.
It said the move would make it easier for online shoppers who work during the week to be able to collect their parcels. The decision comes as many retailers are reporting a big uptake of click-and-collect services, whereby shoppers buy online and then collect the goods from their nearest store at a time that's convenient.
By Alice Attwood; [email protected]; @AliceAtAlliance
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