Thursday 21 January 2016 7:43 am

Royal Mail’s share price rises as strong Christmas helps it deliver results in line with expectations

Royal Mail's share price climbed this morning, after posting solid results covering the crucial Christmas period, giving the venerable institution confidence that full year figures will come in line with expectations.

The figures

Group revenue for the company – which is celebrating its 500th birthday this year – nudged up one per cent for the nine months to 27 December, with Christmas particularly positive.

However revenues at UKPIL, which operates in the UK, collecting and delivers parcels and letters through Royal Mail Core Network and Parcelforce Worldwide, fell one per cent, despite a one per cent increase in parcels, as letter revenues dropped by two per cent.

The growth in parcels was largely down to account wins, import parcels and Parcelforce Worldwide, which grew volumes 16 per cent.

However revenues in this division were up just one per cent "due to the impact of the competitive environment and the trends in mix", Royal Mail said.

Letter volumes dropped by three per cent when the impact of the election is stripped out.

Logistics arm GLS performed better than expected, with revenues up 10 per cent and volumes up 11 per cent.

Royal Mail's share price was up 2.7 per cent in early trading.

[charts-share-price id="35"]

Why it's interesting

Half a millenium after being created, the Royal Mail is going through a turbulent period and operating in an increasingly challenging marketplace. Christmas was critical for the group, and the fact it's managed to deliver growth suggests better times could be in the post.

But the business is not standing still and has made a number of investments in attempt to modernise.

In November, it agreed to acquire eCourier, a same-day parcel delivery company, and one month later it acquired NetDespatch, a software solution provider specialising in parcel data management and labelling for retailers and parcel carriers.

Overall, trading has met expectations and Royal Mail said it was "on track" to deliver at least a one per cent cut in underlying operating costs for the full year.

"Given the performance to date, we are not anticipating a decline in GLS margins for the full year. Otherwise our outlook for letter and parcel trends and other guidance remain unchanged from that set out in our financial results for the half year ended 27 September."

What Royal Mail said

Moya Greene, chief executive, said: "Once again, our postmen and women delivered a great Christmas – even better than last year's strong performance. This is because of the commitment of our people and our investment in additional temporary staff and sorting capacity. Extensive planning, which began in the spring, ensured we had the capacity to accommodate additional volumes from our retail customers and other delivery operators….

"Given the performance to date, we are not anticipating a decline in GLS margins for the full year. We remain on track to deliver at least a one per cent reduction in underlying operating costs before transformation costs in UKPIL for the full year."

What analysts said

Alex Joyner, senior analyst at Galvan Research, said: "It looks like Royal Mail has delivered the goods this Christmas.

"Today’s figures should reassure investors that Moya Greene is starting to turn things around.

"The four per cent growth in parcel volumes was better than expected and helps to offset the 3% decline in letters. Trading in Europe seems to have turned a corner too.

"However, there’s plenty of work still to do and it looks like more cost-cutting will be necessary before we start to see a longer-term recovery in the share price."