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Royal Mail profits drop on parcel delivery competition Royal Mail warns of threat to UK-wide letter deliveries
(35 minutes later)
Royal Mail has reported a fall in half-year profits, with the company feeling the impact of competition from new parcel delivery rivals. Royal Mail has warned that rival delivery firms are endangering its government-mandated Universal Service, which guarantees delivery of letters to all of the UK.
Pre-tax profits for the six months to 28 September fell to £218m, from £233m in the same period last year. "The threat is now," the company's boss, Moya Greene, told the BBC.
The company said Amazon's new delivery network had affected revenues. The company also said increased parcel delivery competition, from firms such as Amazon, could wipe hundreds of millions of pounds of its revenues.
Royal Mail added that "unfettered" competition posed a "potential material threat" to the Universal Service, which guarantees delivery to all of the UK. The caution came as Royal Mail reported a fall in pre-tax profits.
It named delivery service Whistl, formerly known as TNT, as a direct threat, saying the new firm could wipe £200m off Royal Mail's revenue by 2018. They dropped to £218m for the six months to 28 September, from £233m in the same period last year.
Royal Mail also called for the government to reconsider the extent of its Universal Service obligations. Royal Mail named delivery service Whistl, formerly known as TNT, as a direct threat, saying the new firm could wipe £200m off Royal Mail's revenue by 2018.
The firm also warned that online retailer Amazon's direct delivery service could hurt Royal Mail's growth by as much as 2% in the next couple of years.
Royal Mail also called for the government to reconsider the Universal Service obligation, which ensures mail is delivered nationwide, six days a week at one fixed price.
Flat revenues
In the past six months, the company's letter business saw volumes drop by 3%, although this was not as steep a fall as had been expected.
The slower decline was due to election pamphleteering, particularly relating to the Scottish Referendum, for which Royal Mail delivered seven million campaign mailings and over five million poll cards.
The company's UK parcel delivery division saw revenues decline by 1%, largely due to increased competition.
However the firm's international parcel delivery service, GLS, fared well, with revenue up 7%, helping the company's overall revenue to rise by just £5m to slightly above £4.52bn.
Analysis: Kamal Ahmed, BBC Business Editor
Lurking on page 8 of today's numbers is the real story in Royal Mail's results - that the business is warning of a "material risk" to the universal service obligation".
Now, some may dismiss this as special pleading from a company that does not much like competition.
But I have just spoken to the Royal Mail's chief executive, Moya Greene, and she is clear - if action isn't taken now, Royal Mail's ability to fund the six day letter delivery service across the UK will come under possibly unmanageable strain.
"The threat is now," she told me.
While sounding a warning about new competitors, Royal Mail boss Moya Greene emphasised that the firm's performance remains in line with expectations.While sounding a warning about new competitors, Royal Mail boss Moya Greene emphasised that the firm's performance remains in line with expectations.
"But as always," she added, "this depends on us delivering another great Christmas, for which we are fully prepared". "But as always," she added, "this depends on us delivering another great Christmas, for which we are fully prepared."
Royal Mail's letter business saw volumes drop by 3%, although this was not as steep a fall as had been expected. Chris Beauchamp, an analyst at IG, said Royal Mail's warning about reduced parcels growth "will send a winter chill down the spine of investors".
The company has been under increased public scrutiny since it was privatised in October 2013. "The impression given from the statement is that Amazon is likely to become a permanent fixture in Royal Mail's reporting, much like the weather (whether warm or cold) is for retailers," he added.
Royal Mail has been under increased public scrutiny since it was privatised in October 2013.
In July, a group of MPs voiced concerns that the taxpayer may have lost out by about £1bn after Royal Mail shares were "undervalued".In July, a group of MPs voiced concerns that the taxpayer may have lost out by about £1bn after Royal Mail shares were "undervalued".