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Royal Mail warns of threat to UK-wide letter deliveries Royal Mail warns of threat to UK-wide letter deliveries
(about 1 hour later)
Royal Mail has warned that rival delivery firms are endangering its government-mandated Universal Service commitment, which guarantees delivery of letters to all of the UK. Royal Mail has warned that rival firms are endangering its government-mandated Universal Service commitment, which guarantees an affordable postal service that delivers to all UK addresses.
"The threat is now," the company's boss, Moya Greene, told the BBC."The threat is now," the company's boss, Moya Greene, told the BBC.
The company also said increased parcel delivery competition, from firms such as Amazon, could wipe hundreds of millions of pounds of its revenues. She added that the "cherry-picking" of urban mail routes by competitors "undermines the economics" of its nationwide delivery service.
The caution came as Royal Mail reported a fall in pre-tax profits. The caution came as Royal Mail reported a small fall in pre-tax profits.
They dropped to £218m for the six months to 28 September, from £233m in the same period last year.They dropped to £218m for the six months to 28 September, from £233m in the same period last year.
Royal Mail has long called for the government to reconsider the terms of the Universal Service obligation, which ensures mail is delivered nationwide, six days a week, at one fixed price. Shares in Royal Mail fell by more than 8% in the first few hours of trading on Wednesday.
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. 'Unfettered competition'
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. Royal Mail has long called for the regulator, Ofcom, to consider expanding the Universal Service mandate - which ensures mail is delivered nationwide, six days a week, at one fixed price - so that it includes rivals such as Whistl.
The company's UK parcel delivery division saw revenues decline by 1%, largely due to increased competition. That may include forcing competitors to also deliver letters to rural areas at an affordable price - a service for which companies can make little or no profit.
"We believe the current regulatory framework does not fully address the problem posed by unfettered direct delivery competition," Royal Mail said in its financial statement.
"We think there is an urgent need for a new framework that will secure the sustainable provision of the Universal Service for the future."
Amazon warning
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.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. The company also said increased parcel delivery competition, from firms such as Amazon, could dent its business.
In the past six months, Royal Mail'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.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.
Royal Mail 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.
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".
Analysis: Kamal Ahmed, BBC Business EditorAnalysis: 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". 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. 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.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."The threat is now," she told me.
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 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".