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Royal Mail profits down 21% on competition woes

Anna Fedorova
Written By:
Anna Fedorova

Royal Mail suffered a 21 per cent profit fall in the half year ending 28 September 2014, but beat analysts’ expectations of a 30 per cent drop.

Analysts were predicting profits at the postal service group, privatised last year, would fall by 29 per cent to £252m, but they came in better than expected at £279m. This compared to £353m in the same six month period last year.

The group also halved the expected growth of its UK parcel business to 1 per cent to 2 per cent as a result of fierce competition from the likes of online retailer Amazon.

Parcel revenue for the six month reporting period was down 1 per cent at £1.5bn, with the “highly competitive environment” to blame. However, revenue growth came in at 2 per cent, in line with expectations.

Moya Greene, chief executive, said: “The UK parcels market remains challenging. As the pre-eminent UK parcels delivery company, we are targeting a number of new, growing areas, and delivered 2 per cent volume growth in a competitive market.

“We had a better than expected performance in UK letters. GLS, our European parcels business, demonstrated a strong performance with better than expected volumes in domestic and export parcels.

“Our performance remains in line with our expectations for the full year. But, as always, this depends on us delivering another great Christmas, for which we are fully prepared.”

The stock price of Royal Mail has been volatile over the past 12 months and is down 18% year to date at 469p.

Darren Hepworth, director of global trading at TD Direct Investing, said: “It has been a year of changing fortunes for Royal Mail, following the initial speculative bubble – driven in part by the cries that the IPO had been undervalued.

“[Investors] benefited from the peak in price in early 2014 (618p, up almost 90% on list price) with sales making up 77 per cent of all our trades. Since then the price has fluctuated, regularly dropping below the 400p mark.

“The settling of the competition case against its French parcel delivery firm, GLS, in October has provided a much needed boost, increasing the share price by almost 20 per cent.”