Royal Mail posts 25% surge in profits

Royal Mail shares are up this morning after the company posted a strong rise in profits driven by growth in its domestic and overseas parcels business.

Pre-tax profits for the year to the end of March rose 25 per cent to £335m, from £267m last year, on the back of a one per cent rise in revenue to £9.8bn.

"Parcel deliveries rose three per cent thanks to shoppers' insatiable appetite for online shopping, although the number of letters posted fell by six per cent," says the BBC.

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"The business's most impressive performance came from its overseas [parcels] division – General Logistics Systems (GLS) – where sales jumped nine per cent to £2.5bn."

Shares in the FTSE 100 stalwart rose four per cent in early trading and were holding around 1.6 per cent higher by lunchtime at 437.6p.

However, they are down more than six per cent for the year to date, reports the Financial Times, reflecting ongoing concerns over the long-term threat to Royal Mail's letters business, which is a core revenue stream for the company. Royal Mail remains the universal postal service in the UK.

Prior to this, the FT warned that the slowdown was running at "the higher end of its predictions", primarily as a result of business uncertainty related to the possibility of Brexit reducing the volume of marketing mail.

This was a factor in the six per cent fall in the company's preferred measure of adjusted operating profit before transformation costs, which strips out one-off costs and restructuring expenses.

Royal Mail shares slump as Brexit blamed for junk mail decline

20 January

Most people will probably be pleased to hear that since the Brexit vote less junk mail is coming through their letterbox.

Royal Mail is clearly less pleased about this. The company blames a sharp decline in marketing mail, which it links to a loss of business confidence, in large part for a five per cent drop in revenue in its letters business over the nine months to 25 December.

"We are seeing the impact of overall business uncertainty in the UK on letter volumes, in particular advertising and business letters," the company said in a trading update yesterday, according to the BBC.

The news is more positive for Royal Mail's parcels business, which the Daily Mail says handled 138 million parcels in December and generated three per cent more revenue over the nine-month period as a whole compared to 2015.

Overall revenues were "flat", with the Parcelforce international unit seeing a slight decline and the European arm, GLS, recording "strong growth".

The decline in letters was the focal point for investors, however, and Royal Mail's shares were the biggest faller in the FTSE 100 yesterday, down six per cent to 425.3p.

The company's stock was also among the worst performers this afternoon, down a further two per cent to 414p.

The firm says that its savings programme is on track, which should mean its underlying running costs are reduced by one per cent for the year as a whole.

Royal Mail is also in talks to switch 90,000 staff out of their generous final salary pensions, in favour of a cheaper, but now commonplace, money purchase alternative. A consultation on that move is ongoing and no decision has yet been made.