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Royal Mail helped by EU referendum mailings

Discussion in 'Market News' started by Lily, Jul 19, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    First quarter in line with expectations but company cautious on outlook

    Royal Mail received a boost from the EU referendum, thanks to the host of campaign mailings sent ahead of the vote.

    So in a traditionally quiet period for the group - the three months to the end of June - overall revenues rose 1%. Within that UK revenues dipped 1% with parcel revenue up 2% and letter revenue down 3%, mitigated by the fact that political mailings were similar to the previous period thanks to the Brexit leaflets.

    Trading the three months...was in line with our expectations, with no material change in overall trends. Movements in GDP are drivers for letter and business to business parcel volumes, and we are monitoring the situation. We remain focussed on operational and financial efficiency and delivering a high quality service for all our customers.

    Despite EU referendum campaign mailings giving Royal Mail a boost, they delivered what we have come to expect; solid but uninspiring results, with perhaps a touch of glamour from double digit European growth. The UK business remains sluggish, without the benefit of the EU referendum the decline in letters volumes would be in line with company estimates , with competitive pressures in the UK parcels business showing no signs of easing.

    UK parcels was supposed to be the growth engine for Royal Mail, with the UK letters business in decline. So it is somewhat concerning that conditions in the UK parcel market look set to remain challenging.

    Royal Mail has issued a cautious but in-line trading statement for the first quarter period. UK businesses are performing steadily but its European parcels activity continues to grow strongly. Our forecasts for the full year are unchanged with this update. The outlook for the UK economy in the short term is less certain but we think that Royal Mail is a good potential safe haven. Core UK parcels and letters operations are sensitive to the economy but Royal Mail’s market position is strong. The group’s parcels business is a lower cost offering and productivity in letters is improving significantly. Market expectations for profits and margins this year (i.e. about flat year on year) appear conservative and will be supported by significant efficiency savings.

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