LONDON (Alliance News) - Royal Mail Group PLC said Tuesday that revenue in its first quarter rose 2%, supported by good trading in its letters business, while increased competition hit the UK parcels division.
In an interim management statement for the three months to June 29, 2014, and including the period from March 31 to date, the company said the low single digit revenue growth was in line with its strategy.
Trading has been characterised by a good performance in letters, said Royal Mail, with the decline in addressed letter volumes better than its expected range, but a weaker-than-expected performance in UK parcels has been largely driven by the intensifying competitive environment in the account, consumer/SME and export channels, it said.
The FTSE 100-listed company said that on a cost basis, its performance in the period was better than expected. The increase in the cost of sales is slowing due to lower export mail volume growth, added the company.
Cost management remains a key focus for Royal Mail; its management reorganisation programme announced in March 2014 remains on track and is expected to realise cost savings of around GBP25 million which will benefit the second-half of the year, it said.
On a divisional basis, UK parcel volumes rose 1%, while revenue declined 1%, impacted by the phasing of customers' reaction to the introduction of size-based pricing in April 2013, said Royal Mail.
UK Letters revenue was up 3% while addressed letter volumes declined 3%. The decline was better than the expected 4-6% decline per annum; Royal Mail attributes this to the improvement in UK economic conditions while revenue rose on the back of price increases and the uplift from elections traffic, it said.
The General Logistics Systems business has performed well in Europe during the period, said the company; revenues and volumes both rose 6%. However, earlier this month the group said that certain group companies had received notice from AutoritÉ de la Concurrence, the French competition authority, that one of its subsidiaries, GLS France, is involved in an investigation which alleges breaches of antitrust laws by the business in connection with a broader investigation into "alleged activities within the industry in France."
"The turnaround in GLS France continues to progress well but the resulting profit improvement is expected to be offset by increased IT investment across the network," said Royal Mail Tuesday.
Looking ahead, Royal Mail said that due to increased competition in the UK parcels market, Royal Mail said that parcels revenue for the year is likely to be lower than anticipated. "Through cost control measures and with continued good letters performance we expect to be able to offset the impact on profit such that our overall performance would remain in line with our expectations for the full year," said CEO Moya Greene.
Parcels revenue will be dependent on the group's performance in the second-half, it said, which includes the Christmas trading period, and on no further weakening in its addressable UK parcels market. "We expect that the continued strength of Sterling and increasing competition in the export market will impact export parcels revenue for the rest of the year," said the company.
Royal Mail shares dropped at the market open Tuesday, trading 3.43% lower at 450.00 pence per share, the biggest faller on the FTSE 100.