E-Commerce Comes to Aid Royal Mail Plc, Return Traffic Increases By 25 Per Cent

Summary

• Royal Mail Plc was able to register a 25 growth in its returns traffic business during the month of July compared to what it was during the same period a year earlier.
• The deluge of online shopping and the extension of the shopping return period by some of the retailers has resulted in such a large-scale increase in traffic.
• The outbreak of the pandemic and the subsequent lockdown gave a major boost to online retailing in the country with major downstream business volumes also coming into the hands of logistics providers like Royal mail.
• Billionaire Daniel Kretinsky has meanwhile been increasing his stake in the company raising speculations that he may push for the breaking up of the company and make its European operations a separate entity.

Royal Mail Plc (LON: RMG) which was once regarded as a redundant government department in the UK because of the advent of internet and email has now been given a new lease of life because of the e-commerce. The massive growth of online retailing has brought with it a demand for parcel delivery providers who can make deliveries across the country. Royal Mail is one of the largest and the oldest of mail and parcel delivery companies in the country and is now on the forefront of this digital transition of the retail industry and actually saw its business grow massively during that past some years. Even in the month of July when the lockdown had been removed after more than two months, the company was able to register a 25 growth in its returns traffic business during the month of July compared to what it was during the same period a year earlier.

How has been the performance of Royal mail in recent years?

The revenue of Royal mail has grown steadily over the past ten years. For the year ending 29 March 2020, the company had reported a revenue of £10.8 billion, which was a growth of 3.8 per cent over its revenue reported in the previous financial year. Given the massive growth in volumes that the company has been witnessing in its business since the imposition of lockdown, it can be reasonably expected that the company’s performance for this year will be much better than the previous one. Last year, the company had delivered a net loss of £175 million, despite the better revenue performance, this year it is being hoped that its fortunes will turn, and it will perform better given the improved circumstances.

The coronavirus pandemic and the ensuing lockdown has brought about a disruptive transformation in the retail industry in the United Kingdom. Online retailing, which was witnessing steady growth over the past one decade saw a sharp growth in months immediately after the lockdown, as most of the country turned to delivery of essentials at their doorsteps. Many of the companies who sell goods online and the delivery logistics companies have announced a major investment and recruitment drives in the past few months when most other industries have been contemplating laying off some of their workforce. Given the continuing situation on the pandemic, it is likely that the fortunes of online retail, delivery logistics companies, as well as Royal mail will remain strong.  

How her Majesty’s mail service transformed into a modern logistics company?

The company Royal Mail had its origins date back to more than 503 years when it started out as the postal service department for the British Crown in the year 1516. For most of this period it had remained a public service until 2011 when it was converted into a public limited company following the Postal Services Act of 2011. The new corporate entity had its shares floated on the London Stock Exchange in 2013 with 70 per cent of the shares sold to the public and only 30 per cent retained by the United Kingdom government. However, by 2015 the remaining shares were also sold out, making the company a fully public owned company.

The company has three subsidiaries, Royal Mail Group Limited which operates the letter collection and distribution services in the United Kingdom, Parcelforce Worldwide, which operates the parcel division of the company and General Logistics Systems, which operates the international logistic operations of Royal mail. The company still maintains the red pillar mailboxes bearing the British Monarchy symbol, letters are collected into post offices, and deliveries made every day except bank holidays and Sundays.

Royal mail maintains two class of services called the first class and the second class where the goods to be transported are stamped accordingly. The company retains a target of delivering the first-class goods on the next working day and the second-class goods within three working days. Other than that, the company also has a large number of collection centres across the country, along with a large fleet of vehicles that cover every part of the country and help it make deliveries within schedule.

What probable intentions Daniel Kretinsky have for Royal Mail?

Billionaire Daniel Kretinsky has now become the largest investor in Royal Mail owning nearly 13 per cent shares of the company. It is being speculated that it may be his intentions to break up the company with its European operations being hived off into a separate legal entity. This could create a massive value unlocking with a potential of billions in gains for Mr Kretinsky. The total net worth of Mr Kretinsky is estimated at £2.7 billion with most of his fortunes coming from its energy businesses in the UK and eastern Europe.  

How has the company performed on the London Stock Exchange during the year?

(Source – Thomson Reuters)

The shares of the company are identified and traded on the London Stock Exchange under the ticker name RMG on the premium main market segment. The shares of the company are also the constituents of the FTSE 250 index.

The shares of Royal Mail fell in the month of March when the lockdown was imposed, however, since then they have constantly been regaining ground, maintaining a decent level on the exchange. On 2 January 2020, the shares of the company were at GBX 231.90 per share, and from there they fell to GBX 144.80 on 24 March 2020, however, have bounced back to trade at GBX 183.60 per share on 27 August 2020 at 14:28 PM GMT.