The logistics specialist reported revenue growth of 2% in the six months to the end of September which has been driven by strong growth in parcel revenue in its UK Parcels, International & Letters (UKPIL) segment as well as in General Logistics Systems (GLS), with parcels now accounting for 51% of revenue at Royal Mail.
Turnover at UKPIL rose by 1%, accounted for in part by a 9% jump in parcel revenues as the benefits of size-based pricing began to feed through. This growth was offset somewhat by a couple of factors; namely lower volumes in the consumer channel as e-retailing experienced a summer lull due to warm weather and the structural decline in letter volumes (including marketing mail) is reflected by a 4% decline in segmental revenue to £2.2 billion.
The group's GLS division, which is Royal Mail's European parcel business, delivered a robust revenue performance with revenues up 6% to £801 million with parcel volumes again the main driver.
Overall, Royal Mail saw operating profit after transformation costs rising to £283 million, compared with £144 million in the prior period. Perhaps more significantly for a logistics specialist looking to bring its margins into line with its peers, operating profit margin after transformation costs improved to 5.2% from 3.3%, due to revenue growing at a faster rate than costs. While the improved profit margin after transformation costs 'reflects continued tight cost control', the VAT credit and lower depreciation and amortisation benefitted margins by approximately one percentage point.
Debt reduction was another highlight in today's results with the group cutting debt by £183million to £723 million. It has earmarked a £133 million pot for dividends for the full-year period.
Investec analyst John Lawson maintains that while there is still uncertainty surrounding upcoming discussions with workers and trade unions, he may need to raise full-year 2014 estimates 'as transformation costs may now be c.£25 million lower than earlier forecasts.'
We'll take a look at the different analyst opinions towards Royal Mail in tomorrow's new issue of Shares.