Christmas is fast approaching and it seems that it doesn’t appear as such for Royal Mail, which has already cut its growth forecast for the U.K. parcels business by citing its stern competition from Amazon. As the sole provider of the Universal Service in Britain, Royal Mail Group obligates itself to deliver a six-days-a-week and a one-price-goes-anywhere postal service to approximately 29 million addresses across the United Kingdom. Royal Mail is the preferred courier company in the U.K. and many consider there the same is an essential link that connects communities, businesses and customers within the sector and economy.
The recently privatised postal group is already experiencing the harshness of their business operations resulting in a delivery of 21 % in operating profit for the six months to September. Last month, Amazon launched a same-day service that allows for customers to maintain items at and high street shops local agents.
This, according to Royal Mail chief executive is predicted to half the yearly rate of growth in the U.K. addressable market to 1-2 % for approximately two years. The U.K. parcels market remains to be the most challenging predicament in which the performance remains in line with the expectations for the full year. However, this mainly depends on the company whether or not it will be a merry or gloomy Christmas for the company.
Accordingly, the firm will be recruiting an estimated 19,000 temporary staff aside from opening a 10 parcel sort centres to fully manage the ever growing traffic over the yuletide season.
Operating profits diminished to £232 million from £283 million a year earlier which was slightly better than the 30 % fall most analysts speculated. Moreover, pre-tax profit were £218million from £233million respectively.
Total revenues increased slightly to £4.53 billion with the U.K. at £3.7 billion as a 1 % increase in total letter revenue was offset by 1 % declines in terms parcel revenue.
The minute increase of 1 % in letter revenues was attributable to the election mailings delivered by Royal Mail including May’s European elections and local council ballots.
Parcelforce Worldwide was able to increase its growth volume 9 %. However, the competition was still very intense which basically halted stunted the revenue growth.
According to Investec, Royal Mail indicated its performance in line with its expectations for 2015 -subject to the Christmas season- and 2016 will be a key year for the company.
The anticipated changes in the next two years will range from a weaker than previously forecasted U.K. parcels market to a flat or even better cost position than was prior anticipated along with pensions adjustments and two less working days.
The full year profit forecast for the company in 2015 is £443million while in 2016 the profit prediction is £486 million.
Investec has a current holding rate on stock with a previous target of 430p. Accordingly, shares were down by 38p to 430p, a fall of 8 % respectively.