Royal Mail shares dive as profits fall by a fifth
Online retailing, click and collect delivery and mobile apps to blame for Royal Mail's slide in profits, analysts say
Royal Mail shares fell by almost six per cent when trading began this morning after the company announced a 21 per cent fall in half-year profits.
Competition from online sellers offering same-day delivery and other courier services continues to put pressure on the recently privatised mail service.
Royal Mail bosses said they had halved the company's expected growth rate for UK package deliveries to just one or two per cent after a push from e-retailers such as Amazon to offer parcel delivery options of their own.
Pension costs also contributed to the £279 million fall in operating costs, Sky News reports.
Overall letter volume fell by three per cent, but profits from letter delivery increased by one per cent due to increased stamp charges.
In spite of the fall in profits, chief executive 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."
She added that Royal Mail was would work with e-retailers "to be more flexible" and that Royal Mail may accept different types of parcels it had previously declined to deliver.
Greene said that the postal service would introduce later acceptance times and weekend collection to help retailers to deliver goods more quickly.
Michael Hewson of CMC Markets told The Guardian that deliveries are becoming an increasingly difficult market: "The explosion in on-line retailing, click and collect delivery and the use of mobile apps this year is likely to see fierce competition between logistics providers with UK Mail, UPS and Fedex likely to provide plenty of competition, while the recent tie-up between Amazon and Connect Group to provide a 24-hour service for parcel delivery to selected local locations, like underground stations, newsagents and shopping centres, could make a significant dent in Royal Mail's revenue, particularly since Amazon is Royal Mail's largest parcel customer."
Royal Mail shares fell from 477p to 449.45p in the first hour of trading, before recovering slightly to 455.5p by 9.30am.
When the company was privatised just over a year ago shares were sold at 330p each. They peaked at 604.5p in January this year.
Royal Mail shares plummet after parcel revenue warning
Royal Mail shares have plummeted to their lowest level since the company was privatised in October, following warnings that the parcels revenue for the year would be lower than expected.
The company warned that price changes and competition from its rivals have hit its parcels business, with revenue down one per cent in the three months to 29 June compared to the same period in 2013.
The company said it was still likely to meet expectations for its overall annual performance, with revenues for the overall group climbing two per cent in the last quarter.
Nevertheless, stock dropped by as much as four per cent to 445.1p this morning – its lowest price since Royal Mail was floated in October. Shares were initially sold at 330p but immediately surged to 450p at the start of trading.
The sharp rise was, at the time, dismissed as "froth and speculation" by Business Secretary Vince Cable. He has since accepted demands by the National Audit Office for a review into the government's listing process.
The stock has been steadily declining since a peak of more than 600p in February.
Royal Mail said it had also been hit by the impact of Amazon's move to scrap free delivery on orders below £10 – although the company said it is "fighting back" with measures such as a new Sunday delivery service for online shoppers.
"It appears that the honeymoon period is over for Royal Mail as the realities of its competitive environment intensify," Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, tells The Guardian.
The Daily Telegraph says small investors "are still in the money after the controversial float, but their potential profits are slowly being whittled away".
A report from the Government's Business, Innovation and Skills Select Committee, published earlier this month, found that taxpayers may have lost out on about £1bn from the undervaluing of Royal Mail.
Royal Mail profits up 12% but competition to get tougher
Royal Mail's annual operating profits have jumped by 12 per cent to £671m, from £598m a year ago. The company, which was listed in a historic privatisation last October, announced its first full-year set of results today since floating on the stock market.
Sales rose two per cent in the year, from £9.15bn to £9.46bn. And the company's parcel deliveries service overtook its letters business to become the biggest contributor to revenue for the first time, with parcel revenues rising by seven per cent.
It was revealed this week that Royal Mail will trial a Sunday delivery service for parcels to addresses within the M25 motorway. It also plans to open around 100 offices on a Sunday afternoon to allow customers to pick up their parcels.
However, the BBC's John Moylan points out that rival firms, including Hermes and DPD, have already announced plans to deliver on Sundays and that some have been undercutting Royal Mail.
Chief executive Moya Greene acknowledged this concern today and said the company was taking steps to ensure it keeps up with rivals.
Another concern is that Royal Mail is legally obliged to deliver letters anywhere in the country, says City AM. "The worry is that smaller, private companies will take the more convenient and popular routes, leaving it with the harder to reach places – the Shetland Islands, for example," says the newspaper.
It has been a turbulent 12 months, in which government ended its 350 years of state ownership. The Daily Telegraph warned earlier this month that a jump in profits could reignite the row over the valuation the government received for its stake in the organisation. Traders said that profits of as much as 12 per cent would confirm the Royal Mail's market value at around 70 per cent more than the government's sale price. ·