Royal Mail record revenues fail to offset profit problems

Oliver Gill
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Royal Mail chief executive Moya Greene will step down later this year (Source: Royal Mail)

Royal Mail today blasted through the £10bn revenue barrier, as continued stellar growth overseas offset a stuttering performance in the UK.

But shares fell five per cent this morning with investors disappointed by a sharp deterioration in annual profits, which were hurt by charges from the firm's pension fund overhaul.

Today’s results take the shine off Royal Mail’s recent resurgence – the firm’s stock had powered back over 70 per cent since November.

GLS, the postal giant’s overseas arm, which represents a quarter of the firm’s top line, grew annual revenues by 10 per cent to £2.6bn. But UK sales were broadly flat at £7.6bn. Royal Mail’s letters division, facing terminal decline, slipped six per cent to £3bn.

With annual profits slipping from £335m to £212m, investors also took a dim view that the implementation of new European data laws could further hamper performance. Marketing mail revenues, which grew one per cent to £1.1bn, “may decline” as result of General Data Protection Regulation, which takes effect from 25 May.

The bright light at home was a four per cent growth in parcels sales, something outgoing boss Moya Greene hailed as “our best for four years”. But investors remain concerned about the threat of rivals such as Amazon and Deutsche Post – especially when such growth compares with recent non-food year-on-year growth in the UK of 16 per cent, according to the Office for National Statistics.

Read more: Royal Mail is held back by out-of-date red tape

"Series of small disappointments"

Hargreaves Lansdown equity analyst Nicholas Hyett said today’s announcement constituted “a series of small disappointments that mean they’re not quite the full package”.

He said: “Letter volumes are expected to decline next year, impacted by tighter data protection laws, but that’s hardly new. Revenues in the UK are stagnant, which isn’t a bad result, but nor is it anything to get excited about.” chief market analyst Neil Wilson said:

We're seeing much of the same as we have done for a good long UK flat as parcel volumes rise by roughly as much as letters decline, while GLS is powering ahead.

Interactive Investor head of markets Richard Hunter said Royal Mail faces a number of “pitfalls”, adding: “UK productivity was below target, transition costs were significant and this move towards a leaner and more technologically focused operation will become more pressing. In the meantime, competition shows no sign of abating, where Deutsche Post – let alone the seemingly ubiquitous Amazon – are menacing foes.”

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