Royal Mail Profits Fall 21% In Parcels Battle

Royal Mail has announced a 21% fall in half-year profits, admitting Amazon's expansion of its parcel delivery network is hitting growth.

The company, which was controversially privatised 13-months ago , said it was halving the expected growth rate of its UK parcels market to between 1% and 2%, purely as a result of the e-retailer's new focus on deliveries.

Its share price fell 8% during morning trading in the wake of the projection.

Royal Mail also demanded "urgent" action to address the future of its universal service mandate, citing threats posed by rival firms.

It said it was stiff competition that contributed to its fall in operating profits to £279m but it also cited a number of extra costs associated with the figure, including pension charges.

Overall revenue rose 2% and while UK parcel volumes rose 2%, revenues fell by 1% - hit by "pricing pressure in the highly competitive market," Royal Mail said.

Letter volumes fell 3% though revenues rose 1% thanks to higher stamp prices.

Chief executive Moya Greene said: "I am pleased with our overall performance. We have delivered 2% revenue growth together with margin expansion, in line with our expectations."

On the issue of competition in parcels she added: "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% volume growth in a competitive market."

Its results statement said Royal Mail was "working with e-retailers to be more flexible" on the parcels it would accept.

It also pledged more support to eBay sellers.

Royal Mail said the introduction of later acceptance times and weekend collections for retailers and e-retailers, allowing them to fulfil orders made at the weekend for delivery by Royal Mail on Monday, was driving more business.

It had previously warned on the impact of competition from the likes of TNT, now known as Whistl, but Amazon's new same-day delivery service has now been singled out by the company.

The online retailer uses a network of newsagents and high street stores to unite customers with their purchases.

The Pass my Parcel service offers a delivery pledge within 12-hours and is in addition to Amazon's established click & collect service, which has pick-up points at locations including London Tube stations.

Royal Mail also raised again what it saw as the threat to its universal service obligation - of home deliveries six days a week - posed by direct delivery competition.

It said: "We believe the current regulatory framework does not fully address the problem posed by unfettered direct delivery competition.

"We think there is an urgent need for a new framework that will secure the sustainable provision of the universal service for the future.

"We made an evidence-based regulatory submission to Ofcom in June 2014, showing the real and growing threat to the Universal Service from direct delivery. The submission asked Ofcom to accelerate its review of direct delivery competition, which is currently planned for late 2015."

A spokesman for Ofcom said: "Protecting the universal service is at the heart of Ofcom's work, and our own evidence clearly shows that the service is not currently under threat."