Pricier parcels are delivering boost for Royal Mail

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Royal Mail said higher prices for posting parcels helped underlying sales rise two per cent in the nine months to December 29.

The company, which was sold off last October in the biggest UK privatisation for decades, said that a switch from weight to size-based pricing had pushed UK parcels revenue up eight per cent, despite flat volumes.

Royal Mail handled 115 million parcels in December as it reaps the benefit of the online shopping boom.

The company’s seasonal workload, which saw a peak of 10 million parcels on its busiest day, also included a rise in stamped mail volumes as Britons remained loyal to Christmas cards for passing on festive good wishes.

Letter volumes were also boosted by the high level of mailings from energy companies following a round of price rises in the sector.

Royal Mail’s parcels division now accounts for more than half of group revenues, with the company claiming it handled significantly more parcels than any other carrier in the UK market.

Revenues from UK letters were down by three per cent on a like-for-like basis in the nine-month period, although Royal Mail said this was better than the rate of four per cent lower seen in the first six months of the period.

Chief executive Moya Greene said: “Our postmen and women have again delivered Christmas for the UK. We were delighted to see that people continue to send seasonal good wishes.”

Confidence has been boosted by a deal between the company and union leaders on pay, pensions and other issues linked to the privatisation of the postal group.

The sale was opposed by unions and opposition MPs and has been criticised since for possibly short-changing the taxpayer.

Stockbroker Panmure Gordon used the update as an opportunity to cut its recommendation on the stock to hold from buy.

Analyst Gert Zonneveld said: “While we continue to see longer term upside potential in the share price, especially if we assume that the dividend payout ratio is likely to increase going forward, in the near term we expect the shares to tread water.”

Cantor Fitzgerald analyst Robin Byde said that against a backdrop of record online sales for some retailers over Christmas, the parcels performance was disappointing.

“UK parcels was actually disappointing. Flat year-on-year, I think most people will look at that and think about a strong online retailing period in the run-up to Christmas and think that looks a bit odd.”