Shares in Royal Mail fell to their lowest level since October’s privatisation yesterday as the postal giant delivered the gloomy news that revenues at its crucial parcel division are being stymied by strong competition from Amazon.
The FTSE 100 company placed its parcels division at the centre of its growth plans in its £3bn flotation, claiming it was “well-positioned to benefit further from predicted levels of growth in the overall UK parcel market” and telling would-be investors that between 2013 and 2016, online shopping parcel volumes would grow as much as 6 per cent.
But the postal giant blamed Amazon’s introduction of its own delivery vans, and scrapping free delivery charges on orders below £10, which hit order numbers – for parcel revenues falling 1 per cent in the three months to July, despite volumes rising 1 per cent.
“Competition in parcels has intensified more than expected as other carriers seek to fill capacity in their networks by aggressively reducing prices,” Royal Mail admitted. It cast blame on “a slowdown in the retail sector” too, while the number of letters in postmen’s sacks fell 3 per cent in the three months.
After the post operator floated at 330p – the biggest state sell-off since the railways – shares soared, hitting a peak of almost 620p in January, and the Government was accused of selling off the business too cheaply. But yesterday’s news sent shares falling almost 4 per cent, or 16p, to 450p.
Royal Mail said it was opening later on Saturdays and launching Sunday delivery services to try to turn around the trend in parcels. The chief executive Moya Greene, who was paid nearly £1.2m last year, added: “Given the increasing challenges we are facing in the UK parcels market, our parcels revenue for the year is likely to be lower than we had anticipated.
“Our parcels revenue will be dependent on our performance in the second half, which includes the Christmas trading period, and on no further weakening.”
The company is also making £25m in savings through a so-called “management reorganisation programme” announced in March.
Royal Mail also faces competition from France’s DPD, which began a nationwide seven-day delivery service earlier this month, and from TNT Post, which has launched mail delivery services across the country. Ms Greene may face angry shareholders in Birmingham tomorrow, when Royal Mail hosts its first AGM. The chief executive is set to be quizzed over a perceived threat to the future of the universal service.