Royal Mail's lament for monopoly status

Investors might reasonably ask why Royal Mail didn't make more of the inherent unfairness of its statutory obligation when the details of its listing were being thrashed out in Whitehall. The company is required to deliver letters to all corners of the UK six days a week, but its competitors are not bound by the same covenant. Management warns that competitors will restrict delivery to high-density urban destinations at the expense of rural areas. To highlight this, the company cited plans by a rival - TNT Post UK - to launch its own letter delivery service, with the aim of covering 42 per cent of UK addresses by 2017.

Royal Mail's management believe this venture alone could reduce the company's revenues by more than £200m between 2017 and 2018. The worries are probably justified, given that revenues for letter deliveries within the UK fell by 2 per cent to £4.6bn. But whining over the absence of a level playing field isn't likely to elicit an immediate response from Ofcom - particularly as it is still assessing a complaint from TNT about Royal Mail's decision to increase its prices for delivering post collected and pre-sorted by rivals.

Ostensibly, the UK parcels business fared well enough, with revenues up by 7 per cent to £3.2bn. But management's warnings over intensifying competition are borne out by a 40 basis point contraction in adjusted operating margins to 3.5 per cent. In a bid to become more competitive, Royal Mail is trialling a Sunday parcels delivery service and targeting a greater slice of the clothing returns market.