Royal Mail shares buoyed by international parcels division

Royal Mail shares advanced after strong performance from its international parcels business buoyed results.

Pre-tax earnings rose to £335m for the fiscal 2017 year, a 25% improvement on the prior period. The results were also boosted by cost-cutting measures.

International business

A good contribution from its international parcels business GLS more than offset a negative impact from declining letter volumes. Overall, group revenue beat expectations, coming in at £9.8bn, a 1% increase on the year.

Nevertheless, the company admitted that its letters business continued to suffer from declining volumes due to the ongoing growth in electronic communications.

Royal Mail also claimed to have suffered from higher fees for delivering international mail due to a weaker pound in the aftermath of last year´s Brexit vote.

Cost cutting

The company cited ongoing cost-cutting measures as a key priority. It is targeting a reduction in annualised costs at its UK business of £600m in the 2017-18 fiscal year.

In combination with this, it will also continue to invest in its international parcels business, which is enjoying both organic and acquisition-led expansion.

“Through a combination of our strategic approach to costs and more efficient investment spend, we will support our progressive dividend policy with the in-year trading cash generation of the Group,” added Moya Greene, Chief Executive Officer.

Shares firm

Shares in Royal Mail were up by over 2% on Thursday.

Helal Miah, investment research analyst at The Share Centre said the progressive dividend meant that Royal Mail would continue to appeal to income seekers. Miah, however, cautions that rising competition and the structural decline in letter volumes continue to pose long-term challenges.

“There is also the issue of the funding of the pension fund and a potential nationwide strike by its workers. We therefore continue with our medium risk ‘hold’ recommendation,” added Miah.