The 500-year-old postal service is facing tough competition in its parcel business, while letter volumes continue to fall.
Royal Mail is expected to reveal the brutal impact of fierce competition in Britain’s postal market this week when it unveils a dramatic slump in profits.
City analysts expect Royal Mail to report a 16pc fall in annual operating profit before one-off charges to £562m despite the demise of two rivals.
The weaker performance by the 500-year-old postal service is expected even though it has taken on extra parcel volumes following the collapse of CityLink in December last year and the suspension of delivery services by Whistl last week. It is now handling more than 2m extra letters a day.
Whistl, which was formerly known as TNT Post, and is owned by Dutch firm PostNL, said that it was stopping door-to-door letter delivery in Manchester, Liverpool and parts of London, putting up to 2,000 jobs at risk.
David Kertens, from broker Jefferies, said the reduced competition was “good news” for Royal Mail which had indicated it could lose up to £200m in revenue a year if Whistl had successfully expanded.
The Royal Mail, which floated on the stock exchange 18 months ago, is under huge pressure from a structural decline in the number of letters. The parcels arm is also being hit by online shopping site Amazon setting up its own delivery service.
he results are expected to show a sharp fall in profitability at the letter and parcel delivery business UKPIL, where operating profits should fall by £107m to £443m in the year.
Royal Mail has complained that the fierce competition in the sector is resulting in rivals “cherry picking” the profitable urban delivery business and placing its ability to deliver all across the country six days a week for the same price under threat.
Britain’s postal sector regulator, Ofcom, has rejected claims that the Universal Service Obligation (USO), on which the UKs entire postal system is based, is currently at risk. The regulator claimed in a review at the end of last year that the increased competition would force Royal Mail to become more efficient.
Moya Greene, chief executive of Royal Mail, has said that parcel volumes showed a 4pc increase during the Christmas period and analysts will be watching closely to see if that momentum has been sustained to the end of March.
Royal Mail said last week it has met its First Class mail target for the year to the end of March by delivering 93pc the next working day, and exceeding the Second Class mail target 98.5pc by delivering 98.9pc within three working days.
Operating profits before “transformation” costs are more closely watched by investors because the forecast pre-tax profit of £410m includes costs associated with pensions, tax benefits and transforming the business, which are considered one-off. Group revenue is expected to increase by £18m, to £9.47bn.
Royal Mail shares are still 47pc above its controversial 330p flotation price, which valued the postal service at £3.3bn.
