City impressed as Royal Mail announces 25% upturn in profits

18 May 2017

Royal Mail's annual profits have jumped 25% thanks to better-than-expected growth in its parcel delivery business and despite a continued fall in letter volumes.

 Parcel deliveries rose 3% thanks to shoppers' enthusiasm for online shopping, although the number of letters posted fell by 6%.

 Royal Mail put the rise in parcels down to upgraded computer systems, which allow the packages to be sorted faster.

 Pre-tax profits rose to £335m in the year to 26 March from £267m, while revenues grew 1% to £9.8bn.

 The market reacted positively, sending shares up nearly 4% to 446.8p to highs not seen since January.

 Chief executive Moya Greene said: "We have made good progress against all of our strategic priorities. This has been a more challenging period for UK businesses and we have come through it well."

 Despite the boost in profits, the company was cautious over its prospects in the UK, where it makes three-quarters of total sales. The fall in letter deliveries was at the higher end of expectations, with the company blaming uncertainty over the Brexit referendum for the decline.

 "This [fall] reflected the levels of business uncertainty following the EU Referendum and a strong prior year which saw a one-off return of direct delivery volumes," a spokesperson said.

Royal Mail's letters business in the UK struggled, with letter volumes down 6%, but this was offset to some extent by the company's parcels operations.

 Helped by its 50% market share for parcel deliveries in the UK, Royal Mail managed to improve its revenues by 3% to £3.3bn.

 But the business's most impressive performance came from its overseas division - General Logistics Systems (GLS) - where sales jumped 9% to £2.5bn.

 We’ll have more on Royal Mail in the June issue of The Subpostmaster magazine.