Royal Mail enjoys earnings drive from parcel revenues

24th January 2014

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A surge in higher cost parcel deliveries over the festive season has pushed Royal Mail group sales up by 2% with packages accounting for 51% of revenue writes Philip Scott.

In today’s interim management statement covering the nine months to 29 December, the recently privatised group revealed it handled 115 million parcels in the month of December alone, “significantly more than any other carrier in the UK parcel market”, asserted group chief executive officer Moya Greene.

However while higher parcel costs helped boost revenues, actual parcel volumes were flat, as the group said it had anticipated.

Greene added: “Our financial performance to date is in line with our expectations and gives us confidence that we will deliver against our key value drivers for the full year.”

However the market update revealed that total letter revenue declined by 3% on a like-for-like basis, compared with a 4% like-for-like decline in the first half, as the year-on-year impact of London 2012 collectable stamp sales in the prior year diminished.

Stuart Welch, chief executive officer of broker TD Direct Investing says: “Today’s announcement from the Royal Mail confirms that the growth of online shopping and demand over the festive season influenced a rise in parcel delivery revenue of 8%, despite parcel volumes remaining flat.

“This IPO has attracted much debate and focus, but the key question now is whether or not investors are in it for short or long-term gain.”

The privatisation of Royal Mail back in October, was the highest profile and most controversy UK IPO in decades. After initially offering shares to the public at 330p, the stock has remained above 500p since and is currently trading at circa the 588p per share mark – 80% above the original price.

Just a fortnight ago, Labour accused the Government of short-changing taxpayers by hundreds of millions of pounds with its ‘botched’ sell-off of the firm.

Interviewed on the BBC’s Today Programme on the day the Royal Mail privatisation took place in October, Business Secretary Vince Cable dismissed the jump in the price of Royal Mail shares as “froth”, asserting that the sale price should be judged three months after its privatisation.

Chuka Umunna MP, Labour’s Shadow Business Secretary, says: “We know that Vince Cable considered, then rejected, the option of floating Royal Mail at a higher price which would have brought in more cash for taxpayers. He still has serious outstanding questions to answer on the price he could have received three months ago in respect of what increasingly looks like a botched privatisation.”

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