Royal Mail’s privatisation “honeymoon” period has been declared well and truly over, after the company revealed its shining star – the parcels division – has seen a fall in revenues in the past three months.
Parcels account for nearly half of all revenues for the group, and are seen as a key growth area. But Royal Mail said it was facing increasing challenges in the UK market, including competition from carriers “aggressively reducing prices”.
Parcels revenue fell 1% in the three months to June, and Royal Mail said revenue for the year could miss expectations.
Yet the firm stressed it was still likely to meet expectations for its overall annual performance amid plans to slash £50m in costs by axing 1,600 managerial jobs, including some from the marketing function.
It said that although letter volumes decreased by 3% in the latest quarter, letters revenue was up 3% due to the rise in stamp prices and more letters being sent during the local and EU elections.
However, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said that the “honeymoon period” for Royal Mail’s privatisation appeared to be over.
“The weakness in the parcels performance is a concern, and may prompt questions as to whether this is transient, or whether the change is structural,” he said.
Although the decline in the parcels revenue was offset by an improvement in the Royal Mail’s letters business, letters are not a long-term area of growth for the firm, Hunter said.
Cost cutting measures may help in the shorter term, he added, but are also a temporary relief.
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